BACKGROUND & AIMS: Signal transducer and activator of transcription 3 (Stat3) is the main mediator of interleukin-6-type cytokine signaling required for hepatocyte proliferation and hepatoprotection but its role in sclerosing cholangitis and other cholestatic liver diseases remains unresolved. METHODS: We investigated the role of Stat3 in inflammation-induced cholestatic liver injury and used mice lacking the multidrug resistance gene 2 (mdr2(-/-)) as a model for SC. RESULTS: We show that conditional inactivation of stat3 in hepatocytes and cholangiocytes (stat3(Deltahc)) of mdr2(-/-) mice strongly aggravated bile acid-induced liver injury and fibrosis. A similar phenotype was observed in mdr2(-/-) mice lacking interleukin-6 production. Biochemical and molecular characterization suggested that Stat3 exerts hepatoprotective functions in both hepatocytes and cholangiocytes. Loss of Stat3 led to increased expression of tumor necrosis factor alpha, which might reduce the barrier function of bile ducts. Moreover, Stat3-deficient hepatocytes displayed up-regulation of bile acid biosynthesis genes and down-regulation of hepatoprotective epidermal growth factor receptor and insulin-like growth factor 1 signaling pathways. Consistently, stat3(Deltahc) mice were more sensitive to cholic acid-induced liver damage than control mice. CONCLUSIONS: Our data suggest that Stat3 prevents cholestasis and liver damage in sclerosing cholangitis via regulation of pivotal functions in hepatocytes and cholangiocytes.