In order to be functional, STAT5 proteins must first be activated. This activation is carried out by kinases associated with transmembrane receptors:
* Ligands binding to these transmembrane receptors on the outside of the cell activate the kinases; 
* The stimulated kinases add a phosphate group to a specific tyrosine residue on the receptor;
* STAT5 then binds to these phosphorylated-tyrosines using their SH2 domain (STAT domains illustrated below); 
* The bound STAT5 is then phosphorylated by the kinase, the phosphorylation occurring at particular tyrosine residues on the C-terminus of the protein;
* Phosphorylation causes STAT5 to dissociate from the receptor; 
* The phosphorylated STAT5 finally goes on to form either homodimers, STAT5-STAT5, or heterodimers, STAT5-STATX, with other STAT proteins. The SH2 domains of the STAT5 proteins are once again used for this dimerization. STAT5 can also form homo-tetramers, usually in concert with the histone methyltransferase EZH2, and act as a transcriptional repressor. 
In the activation pathway illustrated to the left, the ligand involved is a cytokine and the specific kinase taking part in activation is JAK. The dimerized STAT5 represents the active form of the protein, which is ready for translocation into the nucleus.
Once in the nucleus, the dimers bind to STAT5 response elements, inducing transcription of specific sets of genes. Upregulation of gene expression by STAT5 dimers has been observed for genes dealing with:
* Controlled cell growth and division, or cell proliferation
* Programmed cell death, or apoptosis
* Cell specialization, or differentiation and
* Inflammation.
Activated STAT5 dimers are, however, short-lived and the dimers are made to undergo rapid deactivation. Deactivation may be carried out by a direct pathway, removing the phosphate groups using phosphatases like PIAS or SHP-2 for example, or by an indirect pathway, which involves reducing cytokine signalling.