The prevalence of hepatitis B virus markers was studied among employees and clients at a nonresidential public school for the mentally handicapped and at a privately operated residential facility. In the residential institution, 73 (80%) of 91 clients and 15 (16%) of 92 workers had positive tests for hepatitis B virus markers. Twenty-three clients, including six carriers of hepatitis B surface antigen (subtype ayw), received their education at the public school. Only two students (4%) who did not live at the residential institution and one employee (2%) had positive tests for hepatitis B virus markers. One of these students had acute hepatitis B infection, with hepatitis B surface antigen subtype ayw; the subtyping suggested that he had acquired the infection from one of the six carriers from the residential institution. Testing for IgM antibody to hepatitis B core antigen in single serum samples facilitated the identification of acute and chronic hepatitis B infection in children and staff of both facilities. The results show hepatitis B can be transmitted in this setting, and vaccination may be warranted for susceptible students and staff.