The epidermal growth factor (EGF) receptor activation of downstream signal transducers and activators of transcription 3 (STAT3) plays a crucial role in the pathogenesis of lung cancer. STAT3 transcriptional activity can be negatively regulated by protein inhibitor of activated STAT3 (PIAS3). We investigated the time-dependent PIAS3 shuffling and binding to STAT3 in an EGF-dependent model in lung cancer by using confocal microscopy, immunoprecipitation, luciferase reporter assay, and protein analysis of segregated cellular components. We also explored the role of phosphorylation at Tyr705 of STAT3 in the formation and intracellular shuffling of the PIAS3-STAT3 complex. In a growth factor-free state, PIAS3 was localized to the cytoplasm and unbound to STAT3 in both H520 and A549 cells. On exposure to EGF, we observed STAT3 phosphorylation and rapid formation of the PIAS3-STAT3 complex. Within 5 minutes, there was a progressive translocation of the complex to the nucleus, and by 10 minutes, PIAS3 was uniquely localized to the nuclear compartment. After 30 minutes, PIAS3 returned to the cytoplasm. Using site-directed mutagenesis, we substituted Tyr705 of STAT3 with a phenylalanine. Despite EGF stimulation, we observed a significant decrease in PIAS3-STAT3 binding and a significant reduction in nuclear translocation of PIAS3. Furthermore, there was a significant reduction in the capacity of PIAS3 to reduce STAT3-mediated gene transcription. In wild-type STAT3 cells, increasing concentrations of PIAS3 resulted in a proportional decrease in STAT3 phosphorylation. These data suggest an important role for the negative regulatory effect of PIAS3 on STAT3 in EGF-driven tumors.