The NPM/ALK fusion gene, formed by the t(2;5) translocation in anaplastic large-cell lymphoma, encodes a M(r) 75,000 hybrid protein that containsthe amino-terminal portion of the nucleolar phosphoprotein nucleophosmin(NPM) joined to the entire cytoplasmic portion of the receptor tyrosine kinase anaplastic lymphoma kinase (ALK). NPM/ALK encodes a constitutively activated tyrosine kinase that belongs to the family of tyrosine kinases activated by chromosomal translocation. Our studies show that NPM/ALK, similar to other members of this family, activates signal transducer and activator of transcription 5 (STAT5) and that this activation is essential for lymphomagenesis. NPM/ALK-mediated activation of STAT5 was demonstrated by detection of: (a) constitutive tyrosine phosphorylation and enhanced DNA binding ability of STAT5 in NPM/ALK-transformed cells; and (b) NPM/ALK-dependent stimulation of STAT5-mediated transactivation of the beta-casein promoter. Retroviral infection of NPM/ALK+ cells with a dominant-negative STAT5B mutant (STAT5-DNM) inhibited the antiapoptotic activity of NPM/ALK in growth factor and serum-free medium. In addition, STAT5-DNM inhibited proliferation and diminished the clonogenic properties of NPM/ALK-positive cells. Finally, SCID mice injected with NPM/ALK+ cells infected with a virus carrying STAT5-DNM survived significantly longer than mice inoculated with NPM/ALK+ cells infected with the empty virus. Necropsy identified a widespread ALK+ lymphoma in lymph nodes and liver of the affected animals. Together, our data indicate that NPM/ALK-induced activation of STAT5 may play an important role in NPM/ALK-mediated lymphomagenesis.