Stat91 (a 91 kd protein that acts as a signal transducer and activator of transcription) is inactive in the cytoplasm of untreated cells but is activated by phosphorylation on tyrosine in response to a number of polypeptide ligands, including interferon alpha (IFN-alpha) and IFN-gamma. We report here that the inactive Stat91 in the cytoplasm of untreated cells is a monomer and that upon IFN-gamma-induced phosphorylation it forms a stable homodimer. Only the dimer is capable of binding to a specific DNA sequence directing transcription. Through dissociation and reassociation assays, we show that dimerization of Stat91 is mediated through SH2-phosphotyrosyl peptide interactions. Dimerization involving SH2 recognition of specific phosphotyrosyl peptides may well provide a prototype for interactions among family members of STAT proteins to form different transcription complexes.