Increased histone acetylation has been correlated with increased transcription, and regions of heterochromatin are generally hypoacetylated. In investigating the cause-and-effect relationship between histone acetylation and gene activity, we have characterized two yeast histone deacetylase complexes. Histone deacetylase-A (HDA) is an approximately 350-kDa complex that is highly sensitive to the deacetylase inhibitor trichostatin A. Histone deacetylase-B (HDB) is an approximately 600-kDa complex that is much less sensitive to trichostatin A. The HDA1 protein (a subunit of the HDA activity) shares sequence similarity to RPD3, a factor required for optimal transcription of certain yeast genes. RPD3 is associated with the HDB activity. HDA1 also shares similarity to three new open reading frames in yeast, designated HOS1, HOS2, and HOS3. We find that both hda1 and rpd3 deletions increase acetylation levels in vivo at all sites examined in both core histones H3 and H4, with rpd3 deletions having a greater impact on histone H4 lysine positions 5 and 12. Surprisingly, both hda1 and rpd3 deletions increase repression at telomeric loci, which resemble heterochromatin with rpd3 having a greater effect. In addition, rpd3 deletions retard full induction of the PHO5 promoter fused to the reporter lacZ. These data demonstrate that histone acetylation state has a role in regulating both heterochromatic silencing and regulated gene expression.