NF-kappaB and STATs regulate multiple cellular processes through the transcriptional activation of genes with diversified functions. Although the molecular mechanisms that can turn on/off the overall NF-kappaB/STAT signaling have been extensively studied, how NF-kappaB/STAT-target genes can be differentially regulated is poorly understood. Here we report that PIASy, a member of the PIAS (for protein inhibitor of activated STAT) protein family, is a physiologically important transcriptional repressor of NF-kappaB and STAT1. Piasy deletion in dendritic cells resulted in enhanced expression of a subset of NF-kappaB and STAT1-dependent genes in response to LPS or IFN-gamma treatment, respectively. Consistently, Piasy null mice are hypersensitive to the LPS-induced endotoxic shock. Furthermore, PIASy and PIAS1 display specific as well as redundant effects on the regulation of NF-kappaB/STAT1 signaling. Pias1-/-Piasy-/- embryos died before day 11.5. The disruption of one allele of Pias1 in the Piasy-/- background significantly enhanced the effect of Piasy deletion on the transcriptional induction of NF-kappaB/STAT1-dependent genes, and vice versa. Our results demonstrate that PIASy cooperates with PIAS1 to regulate the specificity and magnitude of NF-kappaB/STAT1-mediated gene activation.