Several previously known transcription cofactors have been demonstrated in vitro recently to be histone acetyltransferases and deacetyltransferases, suggesting that remodeling of chromatin through histone acetylation plays a fundamental role in gene regulation. Clear evidence has not yet been obtained, however, to demonstrate that histone acetylation is required for gene activation in vivo. In this study we performed an alanine-scan mutagenesis through the HAT (histone acetyltransferase) domain identified previously by deletion mapping in recombinant yeast Gcn5. We identified multiple substitution mutations that eliminated completely Gcn5's ability to potentiate transcriptional activation in vivo. Strikingly, each of these mutations was also critical for free and nucleosomal histone acetylation by Gcn5 functioning within the native yeast HAT complexes, Ada, and SAGA. Moreover, the growth phenotypes of these mutations as measured by colony size and liquid growth assay closely tracked transcription and HAT activities. In contrast, mutations that did not affect in vivo function of Gcn5 were able to acetylate histones. These data argue strongly that acetylation is required for gene regulation by Gcn5 in vivo, and support previous arguments that nucleosomal histones are among the physiological substrates of acetylation by Gcn5.