BACKGROUND: Transient induction of the Src oncoprotein in a non-transformed breast cell line can initiate an epigenetic switch to a cancer cell via a positive feedback loop that involves activation of the signal transducer and activator of transcription 3 protein (STAT3) and NF-κB transcription factors. RESULTS: We show that during the transformation process, nucleosome-depleted regions (defined by formaldehyde-assisted isolation of regulatory elements (FAIRE)) are largely unchanged and that both before and during transformation, STAT3 binds almost exclusively to previously open chromatin regions. Roughly, a third of the transformation-inducible genes require STAT3 for the induction. STAT3 and NF-κB appear to drive the regulation of different gene sets during the transformation process. Interestingly, STAT3 directly regulates the expression of NFKB1, which encodes a subunit of NF-κB, and IL6, a cytokine that stimulates STAT3 activity. Lastly, many STAT3 binding sites are also bound by FOS and the expression of several AP-1 factors is altered during transformation in a STAT3-dependent manner, suggesting that STAT3 may cooperate with AP-1 proteins. CONCLUSIONS: These observations uncover additional complexities to the inflammatory feedback loop that are likely to contribute to the epigenetic switch. In addition, gene expression changes during transformation, whether driven by pre-existing or induced transcription factors, occur largely through pre-existing nucleosome-depleted regions.