Hepatitis-B virus infection is globally ubiquitous, but its distribution is very heterogeneous, with prevalence of serological markers in various nations ranging from less than 1% to more than 90%. We propose an explanation for this diversity using a mathematical model of hepatitis-B virus transmission dynamics that shows, for the first time, 'catastrophic' behavior using realistic epidemiological processes and parameters. Our major conclusion is that the prevalence of infection is largely determined by a feedback mechanism that relates the rate of transmission, average age at infection and age-related probability of developing carriage following infection. Using the model we identify possible, highly non-linear, consequences of chemotherapy and immunization interventions, for which the starting prevalence of carriers is the most influential, predictive quantity. Taken together, our results demand a re-evaluation of public health policy towards hepatitis-B.