Stat5 was initially identified as a prolactin-induced member of the signal transducer and activator of transcription (Stat) family in sheep. However, Stat5 is also activated in the response to a variety of cytokines. In mice, and possibly in other species, there exist two Stat5 genes (Stat5a and Stat5b) that encode proteins of 92 and 94 kDa that are 95% identical. In the studies described here, we demonstrate that naturally occurring carboxyl-truncated, variant Stat5 proteins of 77 and 80 kDa exist and that these proteins are inducibly tyrosine phosphorylated in the response to several cytokines and form heterodimers with the full-length, wild-type proteins. Using expression constructs encoding truncated forms, we demonstrate that the truncated forms can be tyrosine phosphorylated and bind DNA. Surprisingly, the tyrosine phosphorylation of the carboxyl-truncated forms is considerably more stable than that of the wild-type proteins. Overexpression of a carboxyl-truncated Stat5a in cells resulted in the specific inhibition of the transcriptional activation by interleukin-3 of the genes for oncostatin M (Osm) and the cytokine-inducible, SH2 domain-containing gene (Cis), both of which have been shown to be normally regulated by Stat5. Although Stat5 dominantly suppressed the induction of these genes, no effects on cell proliferation were observed. Together, the results demonstrate the natural existence of potentially dominantly suppressive variants of Stat5 and implicate the carboxyl domain of Stats in transcriptional regulation and functions related to dephosphorylation.