Long noncoding RNAs (lncRNAs) are thought to be prevalent regulators of gene expression, but the consequences of lncRNA inactivation in vivo are mostly unknown. Here, we show that targeted deletion of mouse Hotair lncRNA leads to derepression of hundreds of genes, resulting in homeotic transformation of the spine and malformation of metacarpal-carpal bones. RNA sequencing and conditional inactivation reveal an ongoing requirement of Hotair to repress HoxD genes and several imprinted loci such as Dlk1-Meg3 and Igf2-H19 without affecting imprinting choice. Hotair binds to both Polycomb repressive complex 2, which methylates histone H3 at lysine 27 (H3K27), and Lsd1 complex, which demethylates histone H3 at lysine 4 (H3K4) in vivo. Hotair inactivation causes H3K4me3 gain and, to a lesser extent, H3K27me3 loss at target genes. These results reveal the function and mechanisms of Hotair lncRNA in enforcing a silent chromatin state at Hox and additional genes.