Interleukin-3 (IL3) was shown recently to utilize the transcription factor Stat5, but the genes regulated by this pathway and the biological consequence of Stat5 activation remained to be determined. In order to study the role of Stat5 in IL3 signalling, we constructed a dominant-negative Stat5 protein by C-terminal truncation, and inducibly expressed it in an IL3-dependent cell line. The effect of dominant-negative Stat5 induction on expression of IL3 early response genes was examined, and expression of several genes, including cis, osm and pim-1 was inhibited profoundly. The expression of c-fos was also reduced, but to a lesser extent. While activated Ras alone (though not Stat5 alone) could induce c-fos, maximal expression required the action of both Ras and Stat5. Interestingly, although the membrane-proximal region of the IL3 receptor beta-chain is responsible for both Jak2-Stat5 activation and c-myc induction, c-myc levels were not affected by the dominant-negative Stat5. Thus, the signals directed by this membrane-proximal domain, which is essential for transducing a DNA synthesis signal, can be separated further into Stat5 or c-myc pathways. The net effect of dominant-negative Stat5 expression was partial inhibition of IL3-dependent growth. This provides the first direct evidence that Stat5 is involved in regulation of cell proliferation.