Purpose: STAT3 is known to have both oncogenic and tumor suppressive effects, but the regulation of these opposing effects is elusive. We hypothesized that STAT3b, one of the two STAT3 isoforms, is the key determinant in this context.Experimental Design: The prognostic significance of STAT3b and phospho-STAT3a Y705 (pSTAT3a Y705 ) was evaluated in 286 cases of patients with esophageal squamous cell carcinoma (ESCC). STAT3b-induced changes in the chemosensitivity to cisplatin and 5-fluorouracil were assessed both in vitro and in vivo. STAT3b-induced changes in the frequency of cancer stem cells were evaluated using Hoechst and CD44 staining. How STAT3b regulates STAT3a was determined using immunoprecipitation, confocal microscopy, DNA-binding, and chromatin immunoprecipitation-PCR.Results: STAT3b expression is an independent protective prognostic marker in patients with ESCC, which strongly correlated with longer overall survival (P ¼ 0.0009) and recurrence-free survival (P ¼ 0.0001). STAT3b significantly decreased the cancer stem cell population, and sensitized ESCC cells to cisplatin and 5-fluorouracil in tumor xenografts. Mechanistically, STAT3b markedly attenuated the transcription activity of STAT3a via inducing STAT3a:STAT3b heterodimers. However, the heterodimer formation decreased the binding between STAT3a and PTPN9 (better known as PTP-MEG2), a protein tyrosine phosphatase, thereby promoting the phosphorylation of STAT3a Y705 and enhancing its nuclear translocation and DNA binding. Correlating with this, high STAT3b expression converts the prognostic value of pSTAT3a Y705 from unfavorable to favorable in patients with ESCC.Conclusions: STAT3b suppresses chemoresistance and cancer stemness by blocking the transcriptional activity of STAT3a. The paradoxical increase in pSTAT3a Y705 induced by STAT3b carries important implications as to how the biologic and prognostic significance of STAT3 in cancers should be interpreted. Clin Cancer Res; 22(3); 691-703. Ó2015 AACR.