The functional interaction between the glucocorticoid receptor (GR) and the signal transducer and activator of transcription-5 (Stat5) was investigated by studying the synergistic activation of beta-cascin gene transcription by prolactin and glucocorticoids. The synergism was shown to be mediated by a complex hormone response region with multiple binding sites for Stat5, the glucocorticoid receptor, and CCAAT/enhancer binding proteins (C/EBP). HC11 mammary epithelial cells, which contain physiological levels of GR and Stat5, and COS-7 cells overexpressing GR and Stat5 were employed. In both cell types intact binding sites for Stat5 and the GR were a prerequisite for the synergism, whereas C/EBP sites were only required in HC11 cells. Interestingly, the GR sites employed for the synergism were nonclassical, half palindromic sites, which did not function in the absence of activated Stat5 to mediate the action of the GR on transcription. The interaction of GR and Stat5 triggered by the unusual configuration of binding sites appears to represent a novel mechanism by which these two distinct types of transcription factors cooperate. The mode of interaction provides an efficient means to restrict gene expression to conditions where both Stat5 and the GR are activated.