Boundaries between euchromatic and heterochromatic regions until now have been associated with chromatin-opening activities. Here, we identified an unexpected role for histone deacetylation in this process. Significantly, the histone deacetylase (HDAC) Rpd3 was necessary for boundary formation in Saccharomyces cerevisiae. rpd3Delta led to silent information regulator (SIR) spreading and repression of subtelomeric genes. In the absence of a known boundary factor, the histone acetyltransferase complex SAS-I, rpd3Delta caused inappropriate SIR spreading that was lethal to yeast cells. Notably, Rpd3 was capable of creating a boundary when targeted to heterochromatin. Our data suggest a mechanism for boundary formation whereby histone deacetylation by Rpd3 removes the substrate for the HDAC Sir2, so that Sir2 no longer can produce O-acetyl-ADP ribose (OAADPR) by consumption of NAD(+) in the deacetylation reaction. In essence, OAADPR therefore is unavailable for binding to Sir3, preventing SIR propagation.