The critical role of signal transducer and activator of transcription 3 (Stat3) in the growth and survival of human tumor cells identifies it as a promising target for cancer drug discovery. We previously identified a Stat3 SH2 domain-binding phosphopeptide, PY*LKTK, and its tripeptide derivatives, PY*L and AY*L (where Y* represents phosphotyrosine), which inhibit Stat3 biochemical activity and biological function. Here, we report novel peptidomimetic compounds based on PY*L (or AY*L) with substitution of the Y-1 residue by benzyl, pyridyl, or pyrazinyl derivatives that are selective and greater than 5-fold more potent in disrupting Stat3 activity in vitro than lead tripeptides. The biological activities of these derivatives mirror that originally observed for peptides. In this context, the representative peptidomimetic ISS 610 with 4-cyanobenzoate substitution inhibits constitutive Stat3 activity in Src-transformed mouse fibroblasts and human breast and lung carcinoma cells. This effect is not evident with the non-phosphorylated counterpart, ISS 610NP, consistent with interaction of peptidomimetics with the SH2 domain of Stat3. Moreover, ISS 610 induces cell growth inhibition and apoptosis of Src-transformed fibroblasts that contain persistently active Stat3. We present the first report of a peptidomimetic approach to design of small-molecule inhibitors of Stat3 that are also among the first examples of disruptors of transcription factor dimerization with the potential for novel cancer therapy.