The mechanisms by which hepatitis C virus (HCV) induces chronic infection in the vast majority of infected individuals are unknown. Sequences within the HCV E1 and E2 envelope genes were analyzed during the acute phase of hepatitis C in 12 patients with different clinical outcomes. Acute resolving hepatitis was associated with relative evolutionary stasis of the heterogeneous viral population (quasispecies), whereas progressing hepatitis correlated with genetic evolution of HCV. Consistent with the hypothesis of selective pressure by the host immune system, the sequence changes occurred almost exclusively within the hypervariable region 1 of the E2 gene and were temporally correlated with antibody seroconversion. These data indicate that the evolutionary dynamics of the HCV quasispecies during the acute phase of hepatitis C predict whether the infection will resolve or become chronic.