Serum levels of antibody to hepatitis B core antigen and IgM antibody to hepatitis B core antigen were tested in 15 patients who participated in a randomized, placebo‐controlled trial of a 28‐day course of prednisolone therapy. During treatment, serum levels of antibody to hepatitis B core antigen and IgM antibody to hepatitis B core antigen decreased in all 10 treated patients, but in none of five controls (p < 0.05). Also during therapy, ALT activity decreased by an average of 50% and serum IgG levels by 30% (both p <: 0.05). Serum levels of hepatitis B virus DNA and DNA polymerase activity did not change significantly. Four to 10 weeks after discontinuation of prednisolone, a rebound of serum ALT and IgM antibody to hepatitis B core antigen levels occurred, which usually resolved within the subsequent months of follow‐up evaluation. In three patients, however, there was a prolonged exacerbation of the disease following prednisolone withdrawal; in these three, levels of IgM antibody to hepatitis B core antigen and ALT remained elevated above pretreatment values. The close correlation between changes in serum ALT activity and IgM antibody to hepatitis B core antigen levels suggests that corticosteroids can modulate disease activity in chronic type B hepatitis by suppression of the host‐immune response to hepatitis B virus antigens.