We have previously reported a physical association between STAT1 and the protein kinase double-stranded RNA-activated protein kinase (PKR). PKR inhibited STAT1 function in a manner independent of PKR kinase activity. In this report, we have further characterized the properties of both molecules by mapping the sites of their interaction. A STAT1 mutant unable to interact with PKR displays enhanced interferon gamma (IFN-gamma)-induced transactivation capacity compared with STAT1. This effect appears to be mediated by the higher capacity of STAT1 mutant to heterodimerize with STAT3. Furthermore, expression of STAT1 mutant in STAT1(-/-) cells enhances both the antiviral and antiproliferative effects of IFNs as opposed to STAT1. We also provide evidence that STAT1 functions as an inhibitor of PKR in vitro and in vivo. That is, phosphorylation of eIF-2alpha is enhanced in STAT1(-/-) than STAT1(+/+) cells in vivo, and this correlates with higher activation capacity of PKR in STAT1(-/-) cells. Genetic experiments in yeast demonstrate the inhibition of PKR activation and eIF-2alpha phosphorylation by STAT1 but not by STAT1 mutant. These data substantiate our previous findings on the inhibitory effects of PKR on STAT1 and implicate STAT1 in translational control through the modulation of PKR activation and eIF-2alpha phosphorylation.