A working model for haematopoietic cytokine signal transduction has been hypothesised as follows. Binding of cytokines to specific receptor molecules leads to phosphorylation and activation of receptor associated members of the Janus kinase family. This is followed by tyrosine phosphorylation of the associated receptor and members of the STAT (signal transducer and activator of transcription) family of DNA-binding transcription factors. Phosphorylation is accompanied by STAT dimerisation, nuclear transport and activation of gene transcription. Activation of gene transcription is mediated by the binding of STAT dimers to palindromic STAT response elements. A number of areas of confusion remain; not least the mechanism by which multiple cytokines signal via a limited number of STATs. A role has been suggested for phosphorylated receptor tyrosine residues as STAT docking sites on activated receptor-JAK complexes. According to this model the amino acid sequence context of key tyrosine residues confers receptor specificity upon STAT activation. There is some controversy as to whether this model applies to STAT 5. The heterologous expression of STAT 5 in Sf 9 insect cells using the baculovirus expression system is described here. Protein of the correct molecular weight was expressed and found to be phosphorylated on tyrosine residues and to bind to a STAT response DNA element. This binding was dependent upon the phosphorylation status of the STAT protein. DNA binding could be abolished in vitro by treatment with a phosphotyrosine phosphatase and restored in vitro by treatment with activated recombinant JAK 2. The protein was purified to near homogeneity using a simple ion exchange/gel filtration chromatography procedure. The interaction between purified recombinant STAT 5 and JAK 2, either expressed by baculovirus or endogenously expressed in Buffalo rat liver cells, was studied. In both cases STAT 5 in its non-phosphorylated form was found to form a stable complex with activated JAK 2. Non-activated JAK 2 and phosphorylated STAT 5 were unable to participate in complex formation. The results presented provide a mechanistic basis for the activation of STAT 5 by a wide range of cytokines capable of activating JAK 2.