Dasatinib (BMS-354825) is a novel, oral, potent, multitargeted kinase inhibitor of Bcr-Abl and Src family kinases (SFK) and is a promising cancer therapeutic agent. Preclinical data indicate that dasatinib is 325-fold more potent than imatinib against cells expressing wild-type Bcr-Abl, and that dasatinib is active against 18 of 19 Bcr-Abl mutations known to cause imatinib resistance. Phase I clinical data show that dasatinib is well tolerated and highly effective for the treatment of imatinib-resistant/ imatinib-intolerant chronic myelogenous leukemia (CML) and Philadelphia chromosome -positive acute lymphoblastic leukemia. However, the molecular mechanism of action of dasatinib is not fully understood. In this study, we confirm that dasatinib inhibits tyrosine phosphorylation of SFKs, including Src, Hck, and Lyn, in K562 human CML cells. Significantly, downstream signal transducer and activator of transcription 5 (Stat5) signaling is also blocked by dasatinib as shown by decreases in levels of phosphorylated Stat5 and Stat5 DNA-binding activities. In addition, dasatinib down-regulates expression of Stat5 target genes, including Bcl-x, Mcl-1, and cyclin D1. Consistent with these results, blockade of Stat5 signaling by dasatinib is accompanied by inhibition of cell proliferation and induction of apoptosis. Surprisingly, Stat5 DNA-binding activities are enhanced with increasing cell density, which is associated with resistance to apoptosis by dasatinib. Our findings indicate that inhibition of Stat5 signaling downstream of Bcr-Abl/SFKs contributes to the action of dasatinib, and, conversely, that increasing cell density up-regulates Stat5 activation and confers resistance to dasatinib. Moreover, the level of phosphorylated Stat5 in CML cells represents a mechanistically relevant biomarker for monitoring inhibition of Bcr-Abl signaling by dasatinib in CML patients using convenient immunocytochemical assays.