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Summary: Activating germline mutations in STAT3 were recently identified as a cause of neonatal diabetes mellitus associated with beta-cell autoimmunity. We have investigated the effect of an activating mutation, STAT3K392R, on pancreatic development using induced pluripotent stem cells (iPSCs) derived from a patient with neonatal diabetes and pancreatic hypoplasia. Early pancreatic endoderm differentiated similarly from STAT3K392R and healthy-control cells, but in later stages, NEUROG3 expression was upregulated prematurely in STAT3K392R cells together with insulin (INS) and glucagon (GCG). RNA sequencing (RNA-seq) showed robust NEUROG3 downstream targets upregulation. STAT3 mutation correction with CRISPR/Cas9 reversed completely the disease phenotype. STAT3K392R-activating properties were not explained fully by altered DNA-binding affinity or increased phosphorylation. Instead, reporter assays demonstrated NEUROG3 promoter activation by STAT3 in pancreatic cells. Furthermore, proteomic and immunocytochemical analyses revealed increased nuclear translocation of STAT3K392R. Collectively, our results demonstrate that the STAT3K392R mutation causes premature endocrine differentiation through direct induction of NEUROG3 expression. : Saarimäki-Vire et al. use iPSCs derived from a patient with permanent neonatal diabetes to demonstrate that an activating STAT3 mutation leads to premature NEUROG3 expression and concomitant differentiation of pancreatic progenitors through increased nuclear shuttling of the mutant protein. Keywords: monogenic diabetes, STAT3, NEUROG3, iPSC, stem cells, CRISPR, genome editing, pancreatic differentiation, beta cell, endocrine cells