Propagation of mouse embryonic stem (ES) cells in vitro requires exogenous leukemia inhibitory factor (LIF) or related cytokines. Potential downstream effectors of the LIF signal in ES cells include kinases of the Src, Jak, and mitogen-activated protein families and the signal transducer and transcriptional activator STAT3. Activation of nuclear STAT3 and the ability of ES cells to grow as undifferentiated clones were monitored during LIF withdrawal. A correlation was found between levels of STAT3 activity and maintenance of an undifferentiated phenotype at clonal density. In contrast, variation in STAT3 activity did not affect cell proliferation. The requirement for STAT3 was analyzed by targeted mutagenesis in ES cell lines exhibiting different degrees of LIF dependency. An insertional mutation was devised that abrogated Stat3 gene expression but could be reversed by Cre recombination-mediated excision. ES cells heterozygous for the Stat3 mutation could be isolated only from E14 cells, the line least dependent on LIF for self-renewal. Targeted clones isolated from other ES cell lines were invariably trisomic for chromosome 11, which carries the Stat3 locus, and retained normal levels of activated STAT3. Cre-regulated reduction of Stat3 gene copy number in targeted, euploid E14 clones resulted in dose-dependent losses of STAT3 activity and the efficiency of self-renewal without commensurate changes in cell cycle progression. These results demonstrate an essential role for a critical amount of STAT3 in the maintenance of an undifferentiated ES cell phenotype.