Host innate recognition triggers key immune responses for viral elimination. The sensing mechanism of hepatitis B virus (HBV), a DNA virus, and the subsequent downstream signaling events remain to be fully clarified. Here we found that type III but not type I interferons are predominantly induced in human primary hepatocytes in response to HBV infection, through retinoic acid-inducible gene-I (RIG-I)-mediated sensing of the 5′-ε region of HBV pregenomic RNA. In addition, RIG-I could also counteract the interaction of HBV polymerase (P protein) with the 5′-ε region in an RNA-binding dependent manner, which consistently suppressed viral replication. Liposome-mediated delivery and vector-based expression of this ε region-derived RNA in liver abolished the HBV replication in human hepatocyte-chimeric mice. These findings identify an innate-recognition mechanism by which RIG-I dually functions as an HBV sensor activating innate signaling and to counteract viral polymerase in human hepatocytes. Display omitted •Type III IFNs are predominantly induced in human hepatocytes during HBV infection•RIG-I senses the HBV genotype A, B, and C for the induction of type III IFNs•The 5′-ε region of HBV pgRNA is a key element for the RIG-I-mediated recognition•RIG-I counteracts the interaction of HBV P with pgRNA to suppress viral replication The sensing mechanism of hepatitis B virus (HBV) and the subsequent signaling events remain to be fully clarified. Sato and colleagues demonstrate that the RNA sensor RIG-I not only senses HBV pregenomic RNA to preferentially induce type III interferon production but also counteracts the interaction of viral polymerase with the pregenomic RNA for antiviral defense against HBV.