Hepatitis B virus (HBV) small (S) envelope protein has the intrinsic ability to direct the formation of small spherical subviral particles (SVPs) in eukaryotic cells. However, the molecular mechanism underlying the morphogenesis of SVPs from the monomeric S protein initially synthesized at the endoplasmic reticulum (ER) membrane remains largely elusive. Structure prediction and extensive mutagenesis analysis suggested that the amino acid residues spanning W156 to R169 of S protein form an amphipathic alpha helix and play essential roles in SVP production and S protein metabolic stability. Further biochemical analyses showed that the putative amphipathic alpha helix was not required for the disulfide-linked S protein oligomerization, but was essential for SVP morphogenesis. Pharmacological disruption of vesicle trafficking between the ER and Golgi complex in SVP producing cells supported the hypothesis that S protein-directed SVP morphogenesis takes place at the ER-Golgi intermediate compartment (ERGIC). Moreover, it was demonstrated that S protein is degraded in hepatocytes via a 20S proteasome-dependent, but ubiquitination-independent non-classic ER-associated degradation (ERAD) pathway. Taken together, the results reported herein favor a model in which the amphipathic alpha helix at the antigenic loop of S protein attaches to the lumen leaflet to facilitate SVP budding from the ERGIC compartment, whereas the failure of budding process may result in S protein degradation by 20S proteasome in an ubiquitination-independent manner.Importance Subviral particles are the predominant viral product produced by HBV-infected hepatocytes. Their levels exceed the virion particles by 10,000 to 100,000-fold in the blood of HBV infected individuals. The high levels of SVPs, or HBV surface antigen (HBsAg), in the circulation induces immune tolerance and contributes to the establishment of persistent HBV infection. The loss of HBsAg, often accompanied by appearance of anti-HBs antibodies, is the hallmark of durable immune control of HBV infection. Therapeutic induction of HBsAg loss is, therefore, considered to be essential for the restoration of host antiviral immune response and functional cure of chronic hepatitis B. Our findings on the mechanism of SVP morphogenesis and S protein metabolism will facilitate the rational discovery and development of antiviral drugs to achieve this therapeutic goal.