Patients (n = 213) with chronic hepatitis B were randomised to prednisolone (two weeks of 0.6 mg/kg/day, one week of 0.45 mg/kg/day and one week of 0.25 mg/kg/day) or placebo followed by two weeks rest, and were then given human lymphoblastoid interferon 10 MU daily for five days followed by 10 MU thrice weekly for 11 weeks. There were statistically significant effects of prednisolone pre-treatment on both HBeAg disappearance and HBeAg to anti-HBe seroconversion (log rank test statistics 5.43; p = 0.02 and 4.75; p = 0.03). HBeAg disappearance and HBeAg to anti-HBe seroconversion rates were 28 vs. 44% and 23 vs. 38% (placebo vs. prednisolone). Fifteen patients (7.5%) lost HBsAg. Three out of 22 cirrhotic patients (14%), one of whom received prednisolone pre-treatment, developed hepatic decompensation with a fatal outcome. Prednisolone pre-treatment, enhances the effect of lymphoblastoid interferon in chronic hepatitis B. Interferon treatment (with and without prednisolone) should be used with caution in patients with cirrhosis and avoided in patients with evidence of hepatic decompensation.