Signal transducer and activator of transcription 3 (Stat3) is a cytosolic transcription factor that relates signals from the cell membrane directly to the nucleus where it, in complex with other proteins, initiates the transcription of antiapoptotic and cell cycling genes, e.g., Bcl-x(L) and cyclin D1. In normal cells Stat3 transduces signals from cytokines such as IL-6 and growth factors such as the epidermal growth factor. Stat3 is constitutively activated in a number of human tumors. Antisense and dominant negative gene delivery result in apoptosis and reduced cell growth, thus this protein is an attractive target for anticancer drug design. As part of our research on the design of Src homology 2 (SH2) directed peptidomimetic inhibitors of Stat3, in this paper we describe structure-activity relationship studies that provide information on the nature of peptide-protein interactions of a high-affinity phosphopeptide inhibitor of Stat3 dimerization and DNA binding, Ac-Tyr(PO3H2)-Leu-Pro-Gln-Thr-Val-NH2, peptide 1. There is a hydrophobic surface on the SH2 domain that can accommodate lipophilic groups on the N-terminus. Of the amino acids tested, leucine provided the highest affinity at pY+1 and its main chain NH is involved with a hydrogen bond with Stat3, presumably Ser636. cis-3,4-Methanoproline is optimal as a backbone constraint at pY+2. The side chain amide protons of Gln are required for high-affinity interactions. The C-terminal dipeptide, Thr-Val, can be replaced with groups ranging in size from methyl to benzyl. We synthesized a phosphopeptide incorporating groups that provided increases in affinity at each position. Thus, hydrocinnamoyl-Tyr(PO3H2)-Leu-cis-3,4-methanoPro-Gln-NHBn, 50, was the highest affinity peptide, exhibiting an IC50 of 125 nM versus 290 nM for peptide 1 in a fluorescence polarization assay.