STAT family proteins are important mediators of cell signaling and represent therapeutic targets for the treatment of human diseases. Most STAT inhibitors target the protein-protein interaction domain, the SH2 domain, but specificity for a single STAT protein is often limited. Recently, we developed catechol bisphosphates as the first inhibitors of STAT5b demonstrated to exhibit a high degree of selectivity over the close homologue STAT5a. Here, we show that the amino acid in position 566 of the linker domain, not the SH2 domain, is the main determinant of specificity. Arg566 in wild-type STAT5b favors tight binding of catechol bisphosphates, while Trp566 in wild-type STAT5a does not. Amino acid 566 also determines the affinity for a tyrosine-phosphorylated peptide derived from the EPO receptor for STAT5a and STAT5b, demonstrating the functional relevance of the STAT5 linker domain for the adjacent SH2 domain. These results provide the first demonstration that a residue in the linker domain can determine the affinity of nonpeptidic small-molecule inhibitors for the SH2 domain of STAT proteins. We propose targeting the interface between the SH2 domain and linker domain as a novel design approach for the development of potent and selective STAT inhibitors. In addition, our data suggest that the linker domain could contribute to the enigmatically divergent biological functions of the two STAT5 proteins.