Signal transducer and activator of transcription 1 (STAT1) is a critical mediator of interferon-gamma (IFN-gamma)-induced transcription that is regulated through posttranslational modifications and through transacting proteins such as protein inhibitor of activated STAT1 (PIAS1). PIAS proteins have been shown to function as E3-type small ubiquitin-like modifier (SUMO) ligases, and sumoylation has been identified as a modulatory mechanism for several transcription factors. Here we show that STAT1 is subject to SUMO-1 modification, and sumoylation occurs in vivo and in vitro at a single, evolutionary conserved amino acid residue Lys703. Members of the PIAS family of proteins were found to strongly stimulate sumoylation of STAT1. Furthermore, activation of STAT1 by IFN-gamma or pervanadate induced SUMO-1 conjugation. Mutation of Lys703 in STAT1 resulted in increased IFN-gamma-mediated transactivation, suggesting a negative regulatory function for sumoylation. These results indicate that STAT1 is covalently modified by SUMO-1 in cytokine signaling and that PIAS proteins promote SUMO-1 conjugation to STAT1.