Both interleukin 1 beta (IL-1beta) and interleukin-6 (IL-6) are pro-inflammatory cytokines that play a major role in inflammatory diseases as well as cancer. In this work we investigated the signaling pathway involving lipopolysaccharide (LPS)-mediated IL-1beta and IL-6 production in murine macrophage cell lines and primary macrophages. We show that in response to LPS, the JAK/STAT pathway is activated, leading to tyrosine phosphorylation at residue 705 on STAT3 and at residue 701 on STAT1, respectively. A newly developed STAT3 specific inhibitor (stattic) blocked LPS-mediated STAT3 tyrosine phosphorylation and led to inhibition of LPS-mediated IL-1beta and IL-6 production but not TNF-alpha production. Knockdown of STAT3 expression via small interfering RNA (siRNA) decreased the level of STAT3 expression in Raw 264.7 cells and decreased STAT3 tyrosine phosphorylation in response to LPS treatment. Quantitative real time PCR and Western analysis of cells treated with inhibitor or STAT3 siRNA after LPS treatment showed a significant reduction of IL-1beta and IL-6 mRNA and protein compared to cells treated with LPS alone. Moreover stattic abrogated IL-1beta formation in response to extracellular bacteria Staphylococcus aureus and Escherichia coli in murine peritoneal macrophages. This inhibition did not affect caspase-1 activation. These results highlight the complex role of STAT3 in cytokine production and the key role of STAT3 tyrosine phosphorylation in IL-1beta and IL-6 production in response to inflammation.