Interferon (IFN) treatment induces tyrosine phosphorylation and nuclear translocation of Stat1 (signal transducer and activator of transcription) to activate or repress transcription. We report here that a member of the protein inhibitor of activated STAT family, PIASy, is a transcriptional corepressor of Stat1. IFN treatment triggers the in vivo interaction of Stat1 with PIASy, which represses Stat1-mediated gene activation without blocking the DNA binding activity of Stat1. An LXXLL coregulator signature motif located near the NH₂ terminus of PIASy, although not involved in the PIASy–Stat1 interaction, is required for the transrepression activity of PIASy. Our studies identify PIASy as a transcriptional corepressor of Stat1 and suggest that different PIAS proteins may repress STAT-mediated gene activation through distinct mechanisms.