The Stat1 activation-inactivation cycle involves phosphorylation of Stat1 in the cytoplasm, translocation to the nucleus, and then a return of the protein to the cytoplasm in a dephosphorylated state. However, the intracellular site of Stat1 dephosphorylation has not been determined. As receptor signaling declines, the flow of activated Stat1 molecules should be to the site of their dephosphorylation. We found that upon receptor-Janus kinase inactivation, either gradual or abruptly induced by staurosporine treatment, the flow of Stat1 was from cytoplasm to the nucleus and the nucleus was the final compartment in which phosphorylated Stat1 was detected. N-terminal mutants of Stat1, previously shown to remain phosphorylated for a longer time than wild-type Stat1, were able to enter the nucleus and were not inactivated in the presence of staurosporine, directly demonstrating that these mutations affect phosphatase access and/or activity during the normal dephosphorylation of Stat1. In the presence of sodium vanadate, a phosphatase inhibitor, phosphorylated Stat1 accumulated in the nucleus as the total amount of Stat1 in the cytoplasm declined to low levels. We conclude that the nucleus is the site of Stat1 inactivation and that dephosphorylation is required for the rapid nuclear export of Stat1.