Nonhistone chromosomal proteins HMG-14 and HMG-17 are closely related nucleosomal binding proteins that unfold the higher-order chromatin structure, thereby enhancing the transcription and replication potential of chromatin. Here we report that PCAF, a transcription coactivator with intrinsic histone acetyltransferase activity, specifically acetylates HMG-17 but not HMG-14. Using mass spectrum sequence analysis, we identified the lysine at position 2 as the predominant site acetylated by PCAF. Lysine 2 is a prominent acetylation site in vivo, suggesting that this PCAF-mediated acetylation is physiologically relevant. Experiments with HMG-17 deletion mutants and competition studies with various protein fragments indicate that the specific acetylation of HMG-17 is not determined solely by the primary sequence near the acetylation site. By equilibrium dialysis we demonstrated that acetylation reduces the affinity of HMG-17 to nucleosome cores. In addition, we found that the binding of HMG-14 and HMG-17 to nucleosome cores inhibits the PCAF-mediated acetylation of histone H3. Thus, the presence of HMG-14 and HMG-17 affects the ability of PCAF to acetylate chromatin, while the acetylation of HMG-17 reduces its binding affinity to chromatin. Conceivably, in HMG-17-containing chromatin, acetylation of HMG-17 precedes the acetylation of histones.