We report the detection of optical and X-ray variability in the least lumin
ous known Seyfert galaxy, NGC 4395. Between 1996 July and 1997 January the
featureless continuum changed by a factor of 2, which is typical of more lu
minous AGN. The largest variation was seen at shorter wavelengths, so that
the spectrum became 'harder' during higher activity states. During the same
period, the broad emission-line flux changed by similar to 20-30 per cent.
In a one-week optical broad-band monitoring programme, a 20 per cent chang
e was seen between successive nights. The difference in flux observed betwe
en the spectroscopy of 1996 July and the broadband observations implies var
iation by a factor of 3 at 4400 Angstrom in just one month. In the same per
iod, the spectral shape changed from a power law with spectral index alpha
similar to 0 (characteristic of quasars) to a spectral index alpha - 2 (as
observed in other dwarf AGN). ROSAT HRI and PSPC archive data show a variab
le X-ray source coincident with the Galactic nucleus. A change in X-ray flu
x by a factor similar to 2 in 15 d has been observed. When compared with mo
re luminous AGN, NGC 4395 appears to be very X-ray quiet. The hardness rati
o obtained from the PSPC data suggests that the spectrum could be absorbed.
We also report the discovery of weak Ca II K absorption, suggesting the pr
esence of a young stellar cluster providing of the order of 10 per cent of
the blue light. The stellar cluster may be directly observed as a diffuse c
omponent in Hubble Space Telescope (HST) optical imaging. Using HST UV arch
ive data, together with the optical and X-ray observations, we examine the
spectral energy distribution for NGC 4395 and discuss the physical conditio
ns implied by the nuclear activity under the standard AGN model. When in th
e low state, the extrapolated UV continuum is insufficient to explain the o
bserved broad emission lines. This could be explained by intrinsic variabil
ity or absorption or may imply an extra heating source for the broad-line r
egion. The observations can be explained either by an accreting massive bla
ck hole emitting at about 10(-3)L(Edd) Or by a single old compact supernova
remnant with an age of 50 to 500 yr generated by a small nuclear starburst
.