Stat3 is hyperactivated in many human tumors and represents a valid target for anticancer drug design. We present a novel small-molecule Stat3 inhibitor, S3I-M2001, and describe the dynamics of intracellular processing of activated Stat3 within the context of the biochemical and biological effects of the Stat3 inhibitor. S3I-M2001 is an oxazole-based peptidomimetic of the Stat3 Src homology (SH) 2 domain-binding phosphotyrosine peptide that selectively disrupts active Stat3:Stat3 dimers. Consequently, hyperactivated Stat3, which hitherto occurs as “dotlike” structures of nuclear bodies, undergoes an early aggregation into nonfunctional perinuclear aggresomes and a late-phase proteasome-mediated degradation in malignant cells treated with S3I-M2001. Thus, S3I-M2001 inhibited Stat3-dependent transcriptional regulation of tumor survival genes, such as Bcl-xL. Furthermore, Stat3-dependent malignant transformation, survival, and migration and invasion of mouse and human cancer cells harboring persistently activated Stat3 were inhibited by S3I-M2001. Finally, S3I-M2001 inhibited growth of human breast tumor xenografts. The study identifies a novel Stat3 inhibitor, S3I-M2001, with antitumor cell effects mediated in part through a biphasic loss of functional Stat3. The study represents the first on intracellular Stat3 stability and processing following inhibition by a small molecule that has significant antitumor activity.