Hepatitis B virus (HBV) possesses a 3.2-kb partially double-stranded DNA genome that is generated inside the nucleocapsid by the reverse transcription of the 3.5-kb pregenomic viral transcript. The initial steps in viral replication involve the recognition of an encapsidation signal termed epsilon (ϵ) at the 5′-end of the pregenomic RNA by the HBV polymerase. The polymerase-bound pregenomic RNA is subsequently incorporated into an immature nucleocapsid particle and minus-strand HBV DNA synthesis is initiated utilizing the bulge region of ϵ as a template and a tyrosine residue in the amino-terminal region of the polymerase as a primer. Three nucleotides complementary to the 3′-end of the bulge region of ϵ are synthesized and subsequently translocated with the polymerase molecule to the acceptor site located in the DR1 sequence present at the 3′-end of the pregenomic RNA. Using mutagenesis analysis, a sequence element designated phi (φ) located upstream of the 3′ DR1 sequence has been identified that is complementary to ϵ and is important for efficient viral replication. This element may bring the 3′ DR1 sequence into proximity with the three nucleotide primer synthesized at the bulge of ϵ and facilitate primer translocation to the 3′ DR1 acceptor sequence. Sequence elements with similar proximity to the 3′ DR1 sequences and complementarity to ϵ are present in the woodchuck hepatitis virus (WHV) and duck hepatitis B virus (DHBV), suggesting the φ regulatory element may be phylogenetically conserved due to its functional importance in hepadnavirus minus-strand DNA synthesis.