Many cytokine receptors employ Janus protein tyrosine kinases (Jaks) and signal transducers and activators of transcription (Stats) for nuclear signaling. Here, we have established yeast strains in which an autoactivated Jak2 kinase induces tyrosine phosphorylation, dimerization, nuclear translocation, and DNA binding of a concomitantly expressed Stat5 protein. Transcriptional activity of Stat5 on a stably integrated, Stat-dependent reporter gene required the C-terminal fusion of the VP16 transactivation domain. In such yeast strains, the interaction between Jak2 and Stat5 was analyzed without interference by other mammalian proteins involved in regulating Jak-Stat signaling, and mutant versions of both proteins were analyzed for their ability to productively interact. Complexes between Jak2 and Stat5 were found to be stable under stringent co-immunoprecipitation conditions. Deletion of the Jak homology regions 2-7 (JH2-JH7) of Jak2, leaving only the kinase domain (JH1) intact, reduced the ability of the kinase to phosphorylate Stat5, whereas deletion of the JH2 domain caused an increased enzymatic activity. A site-directed R618K mutation in the Stat5 SH2 domain abolished the phosphorylation by Jak2, while deletion of the C terminus led to Stat5 hyperphosphorylation. A single phosphotyrosine-SH2 domain interaction was sufficient for the dimerization of Stat5, but such dimers bound to DNA very inefficiently. Together, our data show that yeast cells are appropriate tools for studying Jak-Stat or Stat-Stat interactions. Our mutational analysis suggests that the Stat5 SH2 domain is essential for the interaction with Jak2 and that the kinase domain of Jak2 is sufficient for Jak2-Stat5 interaction. Therefore, the Jak kinase domain may be all that is needed to cause Stat phosphorylation in situations where receptor docking is dispensable.