The roles and significance of signal transducer and activator of transcription 3 (STAT3) in human cancers have been extensively studied and STAT3 is a promising therapeutic target for cancer drug discovery. During the screening of natural products to identify STAT3 inhibitors, we identified geranylnaringenin (CG902), which decreased luciferase activity in a dose-dependent manner. CG902 specifically inhibited STAT3 phosphorylation at Tyr-705 in DU145 prostate cancer cells and decreased the expression levels of STAT3 target genes, such as cyclin D1, cyclin A, and survivin. Notably, the knockdown of the SHP-2 gene by small interfering RNA suppressed the ability of CG902 to inhibit STAT3 activation and CG902 activated the phosphatase activity of SHP-2 through direct interaction with SHP-2 and induced the phosphorylation of SHP-2. The interactions between CG902 and SHP-2 were confirmed by pull-down assay using biotinylated CG902. The interactions were also further validated by the drug affinity responsive target stability (DARTS) and cellular thermal shift assay (CETSA). The inhibitory effect of CG902 on cell growth was confirmed using the DU145 mouse xenograft model. We propose that CG902 inhibits STAT3 activity through a mechanism that involves the interactions between CG902 and SHP-2, and the phosphorylation of SHP-2, which leads to SHP-2 activation in DU145 cells. CG902 is the first compound to regulate STAT3 activity via the modulation of SHP-2 activity, and our results suggest that CG902 is a novel inhibitor of the STAT3 pathway and an activator of SHP-2, and may be a useful lead molecule for the development of a therapeutic STAT3 inhibitor.