BACKGROUND & AIMS: Studies of hepatitis C virus (HCV) infection, immunopathogenesis, and resulting liver diseases have been hampered by the lack of a small animal model. We developed humanized mice with human immune system and liver tissues to improve the studies of hepatitis C virus pathogenesis and treatment. METHODS: To promote engraftment of human hepatocytes, we expressed a fusion protein of the FK506 binding protein (FKBP) and caspase 8 under control of the albumin promoter (AFC8), which induces liver cell death, in Balb/C Rag2(-/-) γC-null mice. Cotransplantation of human CD34(+) human hematopoietic stem cells (HSC) and hepatocyte progenitors into the transgenic mice led to efficient engraftment of human leukocytes and hepatocytes. We then infected these humanized mice (AFC8-hu HSC/Hep) with primary HCV isolates and studied HCV-induced immune responses and liver diseases. RESULTS: AFC8-hu HSC/Hep mice supported HCV infection in the liver and generated a human immune T-cell response against HCV. HCV infection induced liver inflammation, hepatitis, and fibrosis, which correlated with activation of stellate cells and expression of human fibrogenic genes. CONCLUSIONS: AFC8-hu HSC/Hep mice are a useful model of HCV infection, the immune response, and liver disease because they contain human immune system and liver cells. These mice become infected with HCV, generate a specific immune response against the virus, and develop liver diseases that include hepatitis and fibrosis. This model might also be used to develop therapeutics for HCV infection.