Gamma interferon (IFN-␥) signals to the nucleus through the activation, by tyrosine phosphorylation, of the latent cytoplasmic transcription factor Stat1 (signal transducer and activator of transcription). It has been demonstrated that the activity of Stat1 is dependent on tyrosine phosphorylation which is regulated by Jak tyrosine kinases as well as by the as-yet-unidentified protein tyrosine phosphatase. We report that the N-terminal domain of Stat1, which is highly conserved among all STAT family members, is required for its tyrosine dephosphorylation. A single amino acid substitution (Arg-31 to Ala) in the Stat1 N-terminal domain inhibited Stat1 tyrosine dephosphorylation. The deletion of the Stat1 N-terminal domain resulted in a mutant Stat1 protein which was constitutively phosphorylated on Tyr-701. Upon IFN-␥ stimulation, the tyrosine phosphorylation of this mutant protein was further enhanced but was not down-regulated by protein tyrosine phosphatase in vivo. When expressed in NIH 3T3 cells, this mutant protein greatly enhanced the antiproliferative activity of IFN-␥. We suggest that the N-terminal domains of STATs are crucial for modulating STAT activities through regulating the tyrosine dephosphorylation of STATs.Interferons (IFNs) have antiviral, immunomodulatory, and antiproliferative properties (8). A direct signal transduction pathway from the IFN receptor to the nucleus has been discovered (4,22,36,45). The binding of IFN to its receptor leads to receptor dimerization and the activation of Janus kinase (Jak) tyrosine kinases (30,41,42,46,48). Specific tyrosine residues on the receptor are then phosphorylated by activated Jaks and serve as docking sites for recruiting a family of latent cytoplasmic transcription factors termed signal transducers and activators of transcription (STATs) (12, 13). The STATs are then phosphorylated on tyrosine, most likely by Jaks, and form homo-or heterodimers which subsequently translocate into the nucleus and direct immediate gene activation. It has been shown that gamma IFN (IFN-␥) activates the Stat1 homodimer, which binds to the IFN-␥ response element and activates transcription (6,38,39).STATs belong to a growing family of proteins involved in signal transduction by many cytokines and growth factors. Sequence analysis indicates that members of the STAT family of proteins are highly homologous in several regions. The SH2 domains of STATs have been shown to be crucial for both the activation and dimerization of STAT proteins (10,38). It has been shown that the specificity of STAT activation is largely determined by the SH2 domains of STATs (16) as well as the specific STAT binding motifs present on ligand receptors (13,43).