Breast cancer is often associated with inappropriate activation of transcription factors involved in normal mammary development. Two related transcription factors, signal transducer and activator of transcription (STAT) 5 and STAT3, play important and distinct roles in mammary development and both can be activated in breast cancer. However, the relative contribution of these STATs to mammary tumorigenesis is unknown. We have found that primary human breast tumors displaying activation of both STATs are more differentiated than those with STAT3 activation alone and display more favorable prognostic characteristics. To understand this difference, we have analyzed the effect of these STATs on gene regulation and phenotype of mammary carcinoma cells. STAT5 and STAT3 mediate opposing effects on several key target genes, with STAT5 exerting a dominant role. Using a model system of paired breast cancer cell lines, we found that coactivation of STAT5 and STAT3 leads to decreased proliferation and increased sensitivity to the chemotherapeutic drugs paclitaxel and vinorelbine compared with cells that have only STAT3 activation. Thus, STAT5 can modify the effects of STAT3 from the level of gene expression to cellular phenotype and analysis of the activation state of both STAT5 and STAT3 may provide important diagnostic and prognostic information in breast cancer. (Mol Cancer Res 2009;7(6):966–76)