Cytokines are critically important for the growth and development of a variety of cells. Janus kinases (JAKs) associate with cytokine receptors and are essential for transmitting downstream cytokine signals. However, the regulation of the enzymatic activity of the JAKs is not well understood. Here, we investigated the role of tyrosine phosphorylation of JAK3 in regulating its kinase activity by analyzing mutations of tyrosine residues within the putative activation loop of the kinase domain. Specifically, tyrosine residues 980 and 981 of JAK3 were mutated to phenylalanine individually or doubly. We found that JAK3 is autophosphorylated on multiple sites including Y980 and Y981. Compared with the activity of wild-type (WT) JAK3, mutant Y980F demonstrated markedly decreased kinase activity, and optimal phosphorylation of JAK3 on other sites was dependent on Y980 phosphorylation. The mutant Y980F also exhibited reduced phosphorylation of its substrates, gammac and STAT5A. In contrast, mutant Y981F had greatly increased kinase activity, whereas the double mutant, YY980/981FF, had intermediate activity. These results indicate that Y980 positively regulates JAK3 kinase activity whereas Y981 negatively regulates JAK3 kinase activity. These observations in JAK3 are similar to the findings in the kinase that is closely related to the JAK family, ZAP-70; mutations of tyrosine residues within the putative activation loop of ZAP-70 also have opposing actions. Thus, it will be important to determine whether this feature of regulation is unique to JAK3 or if it is also a feature of other JAKs. Given the importance of JAKs and particularly JAK3, it will be critical to fully dissect the positive and negative regulatory function of these and other tyrosine residues in the control of kinase activity and hence cytokine signaling.