Reversible acetylation of core histones plays an important role in transcriptional regulation, cell cycle progression, and developmental events. The acetylation state of histones is controlled by the activities of acetylating and deacetylating enzymes. By using differential mRNA display, we have identified a mouse histone deacetylase gene, HD1, as an interleukin-2-inducible gene in murine T cells. Sequence alignments revealed that murine HD1 is highly homologous to the yeast RPD3 pleiotropic transcriptional regulator. Indirect immunofluorescence microscopy proved that mouse HD1 is a nuclear protein. When expressed in yeast, murine HD1 was also detected in the nucleus, although it failed to complement the rpd3delta deletion phenotype. HD1 mRNA expression was low in G0 mouse cells but increased when the cells crossed the G1/S boundary after growth stimulation. Immunoprecipitation experiments and functional in vitro assays showed that HD1 protein is associated with histone deacetylase activity. Both HD1 protein levels and total histone deacetylase activity increased upon interleukin-2 stimulation of resting B6.1 cells. When coexpressed with a luciferase reporter construct, HD1 acted as a negative regulator of the Rous sarcoma virus enhancer/promoter. HD1 overexpression in stably transfected Swiss 3T3 cells caused a severe delay during the G2/M phases of the cell cycle. Our results indicate that balanced histone acetylation/deacetylation is crucial for normal cell cycle progression of mammalian cells.