The transcription factor, STAT3, is associated with proliferation, survival, and metastasis of cancer cells. We investigated whether gambogic acid (GA), a xanthone derived from the resin of traditional Chinese medicine, Garcinia hanburyi (mangosteen), can regulate the STAT3 pathway, leading to suppression of growth and sensitization of cancer cells. We found that GA induced apoptosis in human multiple myeloma cells that correlated with the inhibition of both constitutive and inducible STAT3 activation. STAT3 phosphorylation at both tyrosine residue 705 and serine residue 727 was inhibited by GA. STAT3 suppression was mediated through the inhibition of activation of the protein tyrosine kinases Janus-activated kinase 1 (JAK1) and JAK2. Treatment with the protein tyrosine phosphatase (PTP) inhibitor pervanadate reversed the GA-induced downregulation of STAT3, suggesting the involvement of a PTP. We also found that GA induced the expression of the PTP SHP-1. Deletion of the SHP-1 gene by siRNA suppressed the ability of GA to inhibit STAT3 activation and to induce apoptosis, suggesting the critical role of SHP-1 in its action. Moreover, GA downregulated the expression of STAT3-regulated antiapoptotic (Bcl-2, Bcl-xL, and Mcl-1), proliferative (cyclin D1), and angiogenic (VEGF) proteins, and this correlated with suppression of proliferation and induction of apoptosis. Overall, these results suggest that GA blocks STAT3 activation, leading to suppression of tumor cell proliferation and induction of apoptosis.