Signal Transducer and Activator of Transcription 3 (STAT3) is persistently activated in human liver and colon cancer cells and is required for cancer cell viability, survival and migration. Therefore, inhibition of STAT3 signaling may be a viable therapeutic approach for these two cancers. We recently designed a non-peptide small molecule STAT3 inhibitor, LY5, using in silico site-directed Fragment-based drug design (FBDD). The inhibitory effect on STAT3 phosphorylation, cell viability, migration and colony forming ability by LY5 were examined in human liver and colon cancer cells. We demonstrated that LY5 inhibited constitutive Interleukin-6 (IL-6)-induced STAT3 phosphorylation, STAT3 nuclear translocation, decreased STAT3 downstream targeted gene expression and induced apoptosis in liver and colon cancer cells. LY5 had little effect on STAT1 phosphorylation mediated by IFN-gamma. Inhibition of persistent STAT3 phosphorylation by LY5 also inhibited colony formation, cell migration, and decreased the viability of liver cancer and colon cancer cells. Furthermore, LY5 inhibited STAT3 phosphorylation and suppressed colon tumor growth in a mouse model in vivo. Our results suggest that LY5 is a potent STAT3 inhibitor and may be a potential drug candidate for liver and colon cancer therapy.