Sendai virus infection strongly induces interferon (IFN) production and has recently been shown to interdict the subsequent IFN signaling through the Jak/Stat pathway. This anti-IFN activity of SeV is due to its "C" proteins, a nested set of four proteins (C', C, Y1, Y2) that carry out a nested set of functions in countering the innate immune response. We previously reported that all four C proteins interact with Stat1 to prevent IFN signaling through the Jak/Stat pathway. Nevertheless, only the longer C proteins reduced Stat1 levels and prevented IFN from inducing an antiviral (VSV) state, or apoptosis, in IFN-competent murine cells. Here, we investigate the mechanism by which the various C proteins differentially affect the host antiviral defenses. All four C proteins were found to physically associate with Stat1 during cell culture infections, and in vitro in the absence of other viral gene products (as evidenced by co-immunoprecipitation). In addition, the inability of a null mutant (C(F170S)) to bind Stat1 suggests that this interaction is physiologically relevant. We have also shown that the proteasomal inhibitor MG132 can prevent the C protein-induced dismantling of the antiviral (VSV) state in murine cells; thus, the turnover of Stat1 correlates with the C protein-mediated counteraction of the antiviral (VSV) state. The C protein-induced instability of Stat1 was accompanied by a clear increase in the level of mono-ubiquinated Stat1, an unexpected hallmark of protein degradation. Finally, we show that a rSeV with mutant C proteins but wild-type Y proteins (CDelta10-15, that does not counteract the endogenous antiviral (VSV) state of MEFs even though their C proteins bind Stat1 and prevent its activity) is also unable to decrease bulk Stat1 levels or to increase the level of ubiquinated Stat1.