Arsenic is a carcinogen and chronic exposure to arsenic increases the risk of many cancers, including lung cancer. However, the underlying mechanism is not clear. Using A/J mice as a model, our previous animal study has shown that chronic arsenic exposure up-regulates PD-L1 on lung tumor cells which interacts with PD-1 on T cells and inhibits T cell anti-tumor function resulting in increased lung tumorigenesis. In a subsequent in vitro study, we further found that arsenic up-regulated PD-L1 by activating STAT3 at tyrosine 705 in lung epithelial cells, and inhibition of STAT3 mitigated arsenic-induced PD-L1 up-regulation. The present study aims to determine whether STAT3 regulates PD-L1 in the lung of A/J mice and the type of cells from which lung tumor develops upon arsenic exposure. For that purpose, a mouse line with STAT3 conditional knockout in alveolar type 2 (AT2) cells was developed. Our results indicate that arsenic exposure up-regulates PD-L1 in AT2 cells through acti-vating STAT3 in A/J mice. Conditional knockout of STAT3 in AT2 cells inhibited arsenic-induced PD-L1 up-regulation and lung tumor formation. Thus, our findings reveal that STAT3 is the upstream regulator of arsenic-induced PD-L1 up-regulation in AT2 cells and the inhibition of T cell anti-tumor function in the lung, and that AT2 cells are sensitive to arsenic exposure and from which arsenic-enhanced lung tumor formation in A/J mice.