STAT3 is a member of a family of transcription factors with Src homology 2 (SH2) domains that are activated by tyrosine phosphorylation in response to a wide variety of cytokines and growth factors. In this study, we investigated the mechanism of STAT3 activation by the Src family of nonreceptor tyrosine kinases, which have been linked to STAT activation in both normal and transformed cell types. Using Sf-9 insect cells, we demonstrate direct STAT3 tyrosine phosphorylation and stimulation of DNA binding activity by five members of the Src kinase family (Src, Hck, Lyn, Fyn, and Fgr). We also observed stable STAT3.Src family kinase complex formation in this system. Recombinant Src family kinase SH3 domains were sufficient for interaction with STAT3, suggesting a mechanistic basis for the Src kinase-STAT3 interaction. To test the contribution of Src family kinase SH3 domains to the recruitment and activation of STAT3 in vivo, we used Rat-2 fibroblasts expressing activated mutants of the myeloid Src family member Hck. Transformation of fibroblasts by an activated Hck mutant lacking the negative regulatory tail tyrosine residue (Hck-YF) induced strong DNA binding activity of endogenous STAT3. Inactivation of Hck SH3 function by Ala replacement of a conserved Trp residue (W93A mutant) completely abolished STAT3 activation by Hck-YF and reduced transforming activity by 50% without affecting Hck kinase activity. Finally, overexpression of STAT3 in Rat-2 cells transiently stimulated Hck and c-Src kinase activity in the absence of extracellular signals, an effect that was dependent upon a putative SH3 binding motif in STAT3. These results support a model in which Src family kinases recruit STAT3 through an SH3-dependent mechanism, resulting in transient kinase activation and STAT3 phosphorylation.