Alternative splicing of the gene for Stat3, a transcription factor activated by the IL-6 family of cytokines, produces two isoforms: Stat3α and a dominant-negative variant, Stat3β. Stat3β-deficient mice were generated by gene targeting. Despite intact expression and phosphorylation of Stat3α, overall Stat3 activity was impaired in Stat3β^−/− cells. Global comparison of transcription in Stat3β^+/+ and Stat3β^−/− cells revealed stable differences. Stat3β-deficient mice exhibit diminished recovery from endotoxic shock and hyperresponsiveness of a subset of endotoxin-inducible genes in liver. The hepatic response to endotoxin in wild-type mice is accompanied by a transient increase in the ratio of Stat3β to Stat3α. These findings indicate a critical role for Stat3β in the control of systemic inflammation.