The achondroplasia class of chondrodysplasias comprises the most common genetic forms of dwarfism in humans and includes achondroplasia, hypochondroplasia and thanatophoric dysplasia types I and II (TDI and TDII), which are caused by different mutations in a fibroblast growth-factor receptor FGFR3 (ref. 1). The molecular mechanism and the mediators of these FGFR3-related growth abnormalities are not known. Here we show that mutant TDII FGFR3 has a constitutive tyrosine kinase activity which can specifically activate the transcription factor Statl (for signal transducer and activator of transcription)^2,3. Furthermore, expression of TDII FGFR3 induced nuclear translocation of Statl, expression of the cell-cycle inhibitor p21^WAF1/CIP1 , and growth arrest of the cell. Thus, TDII FGFR3 may use Statl as a mediator of growth retardation in bone development. Consistent with this, Statl activation and increased p21^WAF1/CIP1 expression was found in the cartilage cells from the TDII fetus, but not in those from the normal fetus. Thus, abnormal STAT activation and p21^WAF1/CIP1 expression by the TDII mutant receptor may be responsible for this FGFR3-related bone disease.