The biochemical mechanisms underlying epigenetic control of gene expression are increasingly well known. In contrast, the contributions of individual modifications toward activation of lineage-specific genes during vertebrate development are poorly understood. Class II histone deacetylases (HDACs), which show restricted tissue distribution, regulate muscle-specific gene expression, in part through interactions with myogenic transcription factors. We have combined gene expression profiling with manipulation of fetal mouse intestinal tissue to define roles for other regulatory factors. We found that in the developing mouse intestine class I HDACs are confined to the prospective epithelium and that their levels decline coincidently with activation of differentiation genes, suggesting a functional relationship between these events. Overexpression of wild-type but not of mutant HDACs 1 and 2 in fetal intestine explants reverses expression of certain maturation markers. HDAC inhibitors, including the selective class I antagonist valproic acid, activate the same genes prematurely and accelerate cytodifferentiation. Chromatin immunoprecipitation of freshly isolated organs reveals early HDAC2 occupancy at differentiation gene promoters and corresponding histone hypoacetylation that reverses as HDAC levels fall. Thus, modulation of endogenous class I HDAC levels represents a previously unappreciated mechanism to enable onset of tissue-restricted gene expression in a developing mammalian organ.