Most of the activities of IFN-gamma are the result of STAT1-mediated transcriptional responses. In this study, we show that the BRCA1 tumor suppressor acts in concert with STAT1 to differentially activate transcription of a subset of IFN-gamma target genes and mediates growth inhibition by this cytokine. After IFN-gamma treatment, induction of the cyclin-dependent kinase inhibitor, p21WAF1, was synergistically activated by BRCA1, whereas the IRF-1 gene was unaffected. Importantly, the differential induction of p21WAF1 was impaired in breast cancer cells homozygous for the mutant BRCA1 5382C allele. Biochemical analysis illustrated that the mechanism of this transcriptional synergy involves interaction between BRCA1 aa 502-802 and the C-terminal transcriptional activation domain of STAT1 including Ser-727 whose phosphorylation is crucial for transcriptional activation. Significantly, STAT1 proteins mutated at Ser-727 bind poorly to BRCA1, reinforcing the importance of Ser-727 in the recruitment of transcriptional coactivators by STAT proteins. These findings reveal a novel mechanism for BRCA1 function in the IFN-gamma-dependent tumor surveillance system.