STAT3, a member of signal transducers and activators of transcription (STATs) originally discovered as mediators in cytokine signaling pathways, plays an active role in oncogenesis. However, the function of STAT3 in signaling multistage carcinogenesis, especially in transformation of tumor-promotion sensitive epithelial cells has not been elucidated. The present study demonstrates that STAT3 is activated in interleukin-6 induced transformation in mouse skin epithelial cells. DNA binding and transcriptional activities of STAT3 were significantly increased by interleukin-6. This induced anchorage-independent transformation in tumor-promotion sensitive JB6 mouse skin P+ cells but not in the resistant variant P- cells. Two forms of dominant negative STAT3 (mutant of transcriptional domain, mF, or DNA-binding domain, mD) were stably transfected into P+ cells. Activation of STAT3 was abolished and importantly, interleukin-6 induced anchorage-independent growth was absent in both mutant STAT3 transfectants. To determine the genes targeted by STAT3, three matrix metalloproteinase proteins linked with carcinogenesis of epithelial cells were analysed. Both basal and interleukin-6 induced expression of collagenase I and stromelysin I, but not gelatinase A, were inhibited in the mutant STAT3 transfectants. Furthermore, transfection of a wild type STAT3 restored STAT3 transactivation and response to interleukin-6 induced transformation in mutant STAT3 transfectants, which up-regulated collagenase I and stromelysin I as well. Together, these results provide the first evidence that STAT3 activation is required in the progression of multistage carcinogenesis of mouse skin epithelial cells, and matrix metalloproteinases are actively involved in STAT3-mediated cell transformation.