Alternative splicing of the gene for Stat3, a transcription factor activated by the IL-6 family of cytokines, produces two isoforms: Stat3alpha and a dominant-negative variant, Stat3beta. Stat3beta-deficient mice were generated by gene targeting. Despite intact expression and phosphorylation of Stat3alpha, overall Stat3 activity was impaired in Stat3beta(-/-) cells. Global comparison of transcription in Stat3beta(+/+) and Stat3beta(-/-) cells revealed stable differences. Stat3beta-deficient mice exhibit diminished recovery from endotoxic shock and hyperresponsiveness of a subset of endotoxin-inducible genes in liver. The hepatic response to endotoxin in wild-type mice is accompanied by a transient increase in the ratio of Stat3beta to Stat3alpha. These findings indicate a critical role for Stat3beta in the control of systemic inflammation.