Recent studies suggest that Stat3, a transcription factor that mediates cytokine signaling, plays a critical role in the pathogenesis of diabetic nephropathy. Complete Stat3 gene knockout is embryonic lethal; therefore, we crossed Stat3+/- mice with Stat3 mutant mice (SA/SA) that lack full Stat3 activity. This strategy generated Stat3SA/- mice (25% activity) and Stat3SA/+ mice (75% activity), which were made diabetic using streptozotocin in order to define the role of Stat3 in diabetic kidney disease. While the glomerular number was not different between these two groups of mice, the diabetic SA/- mice had significantly less proteinuria, mesangial expansion, glomerular cell proliferation, and macrophage infiltration than the diabetic SA/+ mice. The reduction in Stat3 activity did not affect glomerular hyperfiltration seen after the induction of diabetes, as it was increased to the same degree in both groups of mice. Phosphorylation of Stat3 was markedly increased in the glomeruli of diabetic SA/+ mice compared to diabetic SA/- mice. The expression of inflammatory markers, IL-6, MCP-1, and activated NF-kappaB; type IV collagen, TGF-beta, and ICAM-1 mRNA; or type IV collagen and TGF-beta protein, were all found to be significantly less in glomeruli isolated from diabetic SA/- mice, as compared with diabetic SA/+ mice. Our study shows that Stat3 plays a critical role in the regulation of inflammation and abnormal matrix synthesis at an early stage of DN.