Neurospora crassa utilizes DNA methylation to inhibit transcription of heterochromatin. DNA methylation is controlled by the histone methyltransferase DIM-5, which trimethylates histone H3 lysine 9, leading to recruitment of the DNA methyltransferase DIM-2. Previous work demonstrated that the histone deacetylase (HDAC) inhibitor trichostatin A caused a reduction in DNA methylation, suggesting involvement of histone deacetylation in DNA methylation. We therefore created mutants of each of the four classical N. crassa HDAC genes and tested their effect on histone acetylation levels and DNA methylation. Global increases in H3 and H4 acetylation levels were observed in both the hda-3 and the hda-4 mutants. Mutation of two of the genes, hda-1 and hda-3, caused partial loss of DNA methylation. The site-specific loss of DNA methylation in hda-1 correlated with loss of H3 lysine 9 trimethylation and increased H3 acetylation. In addition, an increase in H2B acetylation was observed by two-dimensional gel electrophoresis of histones of the hda-1 mutant. We found a similar increase in the Schizosaccharomyces pombe Clr3 mutant, suggesting that this HDAC has a previously unrecognized substrate and raising the possibility that the acetylation state of H2B may play a role in the regulation of DNA methylation and heterochromatin formation.