The signal transducer and activator of transcription (STAT) proteins, a family of latent cytoplasmic transcription factors, become activated in response to extracellular ligand binding to cell surface receptors through tyrosine phosphorylation. Concurrently, a serine phosphorylation event in the transcription activation domain (serine 727 for Stat1) occurs. This serine phosphorylation is essential for the maximal transcription activity of Stat1. Here we show that, in addition to the Ser-727 residue and its phosphorylation, the conserved Leu-724 residue is also essential for gene activation mediated by Stat1. When Leu-724 is mutated to Ala, phosphorylation of Stat1 Ser-727 is defective both in vivo and in vitro. Surprisingly, we found a StatL724I mutant that lacks transcription activity despite normal Ser-727 phosphorylation. Further analyses show that Leu-724, as well as the phospho-Ser-727, are essential for the recruitment of the transcription co-activator CBP/p300 to the promoters of Stat1 target genes. Our results demonstrate that the conserved Leu-724 residue is a key residue that controls the maximal transcription activities of Stat1 in IFN-gamma signaling.