There is an apparent dichotomy that exists regarding the role of STAT3 in cancer. Studies in mice have demonstrated an intrinsic requirement for STAT3 in the early development of lymphoid, colon, liver, pancreatic, skin and stomach cancer. However, other studies demonstrated that STAT3 suppresses tumors in brain, breast, colorectal, lung, prostate and thyroid cancer. These functional and genetic studies demonstrated either an intrinsic promoting role for JAK/STAT3 signaling, or a suppressive role, dependent on cancer cell type. We sought to examine mechanisms that underlie the differential roles of STAT3 in cancer using a model of endogenous expression of oncogenic KRAS G12D in mouse lung and pancreatic epithelial cells. Our studies define a fundamental and previously unrecognized function of STAT3 in the maintenance of epithelial cell identity and differentiation. Loss of STAT3 preferentially associates with the acquisition of mesenchymal-like phenotypes, while persistent STAT3 tyrosine phosphorylation (pTyr705) confers a differentiated epithelial morphology. Our results imply a mechanism in which increased levels of pTyr705 STAT3 promote epithelial differentiation during tumor development. In contrast, loss of STAT3 augments tumor development with loss of epithelial identity. Our data point to the possibility that chronic activation of STAT3 limits progression of these cancers, and that the STAT3 signaling node may benefit intervention.