Genes in the mammalian genome contain information necessary to build an organism during development. Epigenetic processes add a further degree of complexity. These mechanisms of temporal and spatial control of gene activity during the development of complex organisms modulate gene expression patterns without modifying the DNA sequence. Post-translational modifications of histones such as acetylation bestow the ability to modify genomic signals. Determining whether epigenetic changes are responsible for particular phenotypes is thus crucial to understand organ development. Here we review the role of histone deacetylase enzymes (HDACs) in guiding lineage commitment and driving cell differentiation, as well as their pharmacological manipulation using small-molecule HDAC inhibitors in various differentiation programs. In particular, we focus on the pancreas as we recently discovered that deacetylase inhibition favors generation of endocrine pancreatic cells. We also discuss the potential application of HDAC inhibitors for disease treatment, with particular emphasis on diabetes therapy.