Transcriptional induction by interferons requires the tyrosine and serine phosphorylation of STAT transcription factors. The N-terminal region is highly homologous among the STAT proteins and surrounds a completely conserved arginine residue. Here we demonstrate arginine methylation of STAT1 by the protein arginine methyl-transferase PRMT1 as a novel requirement for IFNα/β-induced transcription. Methyl-thioadenosine, a methyl-transferase inhibitor that accumulates in many transformed cells, inhibits STAT1-mediated IFN responses. This inhibition arises from impaired STAT1-DNA binding due to an increased association of the STAT inhibitor PIAS1 with phosphorylated STAT1 dimers in the absence of arginine methylation. Thus, arginine methylation of STAT1 is an additional posttranslational modification regulating transcription factor function, and alteration of arginine methylation might be responsible for the lack of interferon responsiveness observed in many malignancies.