Exposure to diesel exhaust particles (DEP) has been associated with adverse health outcomes such as inflammation, adjuvancy, and mutagenesis. However, the molecular mechanisms by which DEP inhalation exerts these effects are still largely unknown. We previously reported that exposure to DEP activates the transcription factor Stat3 in airway epithelial cells, a primary target cell of inhaled DEP. To elucidate the functional role of Stat3 activation in these cells, we investigated the function of Stat3 in DEP-induced expression of the p21 gene in the human bronchial epithelial cell line BEAS-2B. We report that DEP exposure induces increased levels of p21 mRNA and protein in a manner that is independent of p53 and Sp1 expression or DNA binding to the p21 gene. Using chromatin immunoprecipitation assays and expression of a dominant-negative Stat3 mutant, we show that activation of Stat3 and its binding to the p21 promoter are required for DEP-induced expression of p21, suggesting that Stat3 plays an essential role in the induction of p21 by DEP. Additional experiments demonstrated that activation of p21 gene expression is dependent on the activation of epidermal growth factor receptor and Src kinase activities. Finally, we provide evidence suggesting that DEP exposure can inhibit the proliferation of human bronchial epithelial cells, suggesting a functional role of p21 activation airway epithelial cells exposed to DEP.