Abstract A Ras homologue member I (ARHI) is a novel imprinted tumor suppressor gene whose expression is frequently lost in breast and ovarian cancers. This small GTP-binding protein is a member of the Ras superfamily with significant homology to both Ras and Rap. Unlike the Ras oncogene, however, ARHI inhibits tumor cell growth. To elucidate the mechanisms by which ARHI inhibits cancer growth, we screened a human breast epithelial cell cDNA library using a yeast two-hybrid system for ARHI-interacting proteins. ARHI was found to interact with signal transducers and activators of transcription (STAT) 3, a latent transcription factor that transduces signals from the cell surface to the nucleus and activates gene transcription. STAT3 is frequently phosphorylated and activated in breast and ovarian cancers, where cytokines and growth factors up-regulate STAT3 and stimulate proliferation. The ARHI-STAT3 interaction was confirmed by coimmunoprecipitation in mammalian cells and shown to be specific for STAT3 but not STAT1 or STAT5a. When ARHI and STAT3 were coexpressed in SKOv3 cells, ARHI formed a complex with STAT3 in the cytoplasm and prevented interleukin-6–induced STAT3 accumulation in the nucleus. ARHI markedly reduced STAT3 binding to DNA and STAT3-dependent promoter activity while only moderately affecting STAT3 phosphorylation. Deletion of the NH2 terminus of ARHI significantly compromised its inhibitory activity, suggesting that this unique NH2-terminal extension contributes to ARHI's inhibition of STAT3-mediated transcriptional activity. Thus, the physical association between STAT3 and ARHI as well as the functional inhibition of STAT3 transcriptional activity by ARHI suggests a novel mechanism through which a putative tumor suppressor gene can inhibit STAT3 activity in breast and ovarian cancers.