We characterized human SirT1, one of the human homologs of the budding yeast Sir2p, an NAD+-dependent histone deacetylase involved in establishing repressive chromatin and increased life span. SirT1 deacetylates histone polypeptides with a preference for histone H4 lysine 16 (H4-K16Ac) and H3 lysine 9 (H3-K9Ac) in vitro. RNAi-mediated decreased expression of SirT1 in human cells causes hyperacetylation of H4-K16 and H3-K9 in vivo. SirT1 interacts with and deacetylates histone H1 at lysine 26. Using an inducible system directing expression of SirT1 fused to the Gal4-DNA binding domain and a Gal4-reporter integrated in euchromatin, Gal4-SirT1 expression resulted in the deacetylation of H4-K16 and H3-K9, recruitment of H1 within the promoter vicinity, drastically reduced reporter expression, and loss of H3-K79 methylation, a mark restricting silenced chromatin. We propose a model for SirT1-mediated heterochromatin formation that includes deacetylation of histone tails, recruitment and deacetylation of histone H1, and spreading of hypomethylated H3-K79 with resultant silencing.