We recently demonstrated that IFNaR2, a subunit of the interferon receptor, can be proteolytically cleaved in response to interferon-alpha and other activators of protein kinase C. Cleavage occurs at multiple sites, via a mechanism similar to that employed by Notch and the Alzheimer's precursor protein, and releases the intracellular domain (ICD). In this study, we demonstrate that the IFNaR2 ICD, when fused to the yeast Gal4 DNA binding domain (Gal4DBD) selectively modulates transcription of four different promoters under the control of Gal4 upstream activating sequences. We previously showed that Stat2 binds constitutively to the ICD of IFNaR2, in a manner that is independent of tyrosine phosphorylation. Here, we show that ICD transcriptional modulation is dependent upon the carboxyl-terminal transactivation domain of Stat2. Specifically, complementing Stat2 deficient cells with wild-type Stat2 restored the ICD-mediated transcriptional effects while complementation with a mutant form of Stat2 lacking the transcriptional activation domain (TAD) did not. In addition, mutation of the Stat2 binding site on the ICD reduced the transcriptional activity of the Gal4DBD–ICD. Finally, we demonstrate that the activity of Jak1, a tyrosine kinase also known to bind to IFNaR2, is required for ICD-mediated transcriptional effects. © 2005 Wiley-Liss, Inc.