Expression of SHP-1 phosphatase, a key negative regulator of cell signaling, is lost in T cell lymphomas and other malignancies due to DNA methylation of the SHP-1 promoter by a currently undefined mechanism. We demonstrate that malignant T cells express DNA methyltransferase (DNMT) 1 and that constantly activated signal transducer and activator of transcription (STAT) 3 is capable of binding in vitro to DNA oligonucleotides corresponding to four STAT3 SIE/GAS binding sites identified in the SHP-1 promoter. STAT3, DNMT1, and histone deacetylase 1 form complexes and bind to the SHP-1 promoter in vivo. Treatment with pharmacologic grade DNMT1 anti-sense oligonucleotides and STAT3 small-interfering RNA induces in the malignant T cells DNA demethylation and expression of SHP-1 gene. These data indicate that STAT3 may, in part, transform cells by inducing epigenetic silencing of SHP-1 in cooperation with DNMT1 and, apparently, histone deacetylase 1. Reversal of such gene silencing represents an attractive aim for novel anticancer therapies.