Progesterone receptor (PR) plays a critical role in cell proliferation and differentiation, and its transcriptional activity is known to be modulated by cofactor proteins. In the present study, we demonstrated that in the presence of progesterone, protein inhibitor of activated STAT-3 (PIAS3) significantly inhibited the PR transcriptional activity and the expression of progesterone-responsive genes. Reduction of endogenous PIAS3 by PIAS3 small-interfering RNA enhanced PR transactivation in a ligand-dependent manner. PIAS3 interacted with PR both in vitro and in vivo and the interaction was enhanced by progesterone. Furthermore, our findings suggested that PIAS3 strongly induced PRB sumoylation at three sites, Lys-7, Lys-388 and Lys-531. In addition, novel roles in PRB nuclear retention and transactivation were identified for these sites. Our data also suggested that PIAS3 was recruited in a largely hormone-dependent manner in response to a progesterone-responsive promoter. Finally, we demonstrated that PIAS3 inhibited the DNA-binding activity of PR and influenced its nuclear export as well as PR transactivation. Taken together, these data strongly suggested that PIAS3 played an important physiological role in PR function.