STAT proteins play critical roles in the signal transduction pathways for various cytokines. The type I interferons (IFNalpha/beta) promote the DNA-binding activity of the transcription factors STAT1, STAT2, and STAT3. Although the requirement for STAT1 and STAT2 in IFNalpha/beta signaling and action is well documented, the biological importance of STAT3 to IFN action has not yet been addressed. We found that STAT3 plays a critical role in signal transduction by IFNalpha/beta. A human cell line that is resistant to the antiviral and antiproliferative activities of IFN but is still IFN-responsive by virtue of STAT1 and STAT2 activation was found to be defective in STAT3 activation and in induction of NF-kappaB DNA-binding activity. Expression of STAT3 in these resistant cells complemented these signaling defects and also markedly increased cellular sensitivity to the antiviral and antiproliferative effects of IFN. Because STAT3 is involved in the induction of NF-kappaB DNA-binding activity and in the induction of antiviral and antiproliferative activity, our results place STAT3 as an important upstream element in type I IFN signal transduction and in the induction of biological activities. Therefore, our results indicate that STAT1 and STAT2 are not the only STATs required for the expression of the key biological activities of IFNalpha/beta.