The role of STAT3 in infectious diseases remains undetermined, in part because unphosphorylated STAT3 has been considered an inactive protein. Here, we report that unphosphorylated STAT3 contributes to cholinergic anti-inflammation, prevents systemic inflammation, and improves survival in sepsis. Bacterial endotoxin induced STAT3 tyrosine phosphorylation in macrophages. Both alpha 7 nicotinic receptor (alpha 7nAChR) activation and inhibition of JAK2 blunt STAT3 phosphorylation. Inhibition of STAT3 phosphorylation mimicked the alpha 7nAChR signaling, inhibiting NF-kappaB and cytokine production in macrophages. Transfection of macrophages with the dominant-negative mutant STAT3F, to prevent its tyrosine phosphorylation, reduced TNF production but did not prevent the alpha 7nAChR signaling. However, inhibition of STAT3 protein expression enhanced cytokine production and abrogated alpha 7nAChR signaling. Alpha 7nAChR controls TNF production in macrophages through a mechanism that requires STAT3 protein expression, but not its tyrosine phosphorylation. In vivo, inhibition of STAT3 tyrosine phosphorylation by stattic prevented systemic inflammation and improved survival in experimental sepsis. Stattic also prevented the production of late mediators of sepsis and improved survival in established sepsis. These results reveal the immunological implications of tyrosine-unphosphorylated STAT3 in infectious diseases.