The IEM cell line is a murine embryonic endothelial cell line that responds to combinations of basic fibroblast growth factor (bFGF) and leukemia inhibitory factor (LIF) by undergoing proliferation and vasculogenic differentiation in vitro and in vivo. Exposure to LIF and bFGF in vitro permits the IEM cells to specifically chimerize endothelium in vivo and recapitulate normal endothelial development after blastocyst injection. We report here that unmanipulated IEM cells form vascular neoplasias when injected into immunodeficient nude mice. Examination of IEM neoplasia following exposure in vitro to bFGF and LIF before injection into nude mice profoundly reduced or completely suppressed the neoplastic growth of IEM cells. Furthermore, this suppression was observed by treatment with LIF alone, while bFGF treatment did not significantly alter IEM neoplasia and did not modify the LIF-mediated suppression. Characterization of the IEM responses to LIF revealed that the LIF suppression of IEM neoplasia depended on how long the cells were exposed to LIF in vitro. The IEM cell response to LIF was associated with the specific activation of the transcription factor Stat3. Stat1 activation could not be detected in response to LIF, although it is expressed in IEM cells. Our results demonstrate that the LIF-induced differentiation of IEM cells involves suppression of IEM-derived neoplasia and is associated with the specific activation of Stat3.