Among 134 patients with chronic active liver disease, selected by identical clinical, biochemical and morphologic criteria, assigned to standard treatment programs and followed at regular intervals, 21 of 105 failed treatment with standard regimens containing steroids. Treatment failure was more common in patients whose serum contained hepatitis B surface antigen, those with more severe liver disease as judged by liver function tests (prothrombin time) and hepatic morphology (subacute hepatitis or cirrhosis). Early diagnosis of treatment failure, based on changes in liver function tests rather than on clinical features of deterioration, coupled with the immediate administration of higher doses of prednisone with or without higher doses of azathioprine, resulted in disappearance of clinical and biochemical features of disease activity in the majority of patients. These results were greatly superior to those earlier reported by us from patients chosen by identical criteria but treated by conventional measures. However, when endogenous encephalopathy developed the outlook was grave, regardless of previous or subsequent therapy. We recommend that patients at risk for failing conventional treatment be identified early, followed carefully with serial liver function tests, and be treated promptly with higher doses of medication when deterioration occurs.