Histone deacetylases (HDACs) are believed to regulate gene transcription by catalyzing deacetylation reactions. HDAC3 depletion in mouse liver upregulates lipogenic genes and results in severe hepatosteatosis. Here we show that pharmacologic HDAC inhibition in primary hepatocytes causes histone hyperacetylation but does not upregulate expression of HDAC3 target genes. Meanwhile, deacetylase-dead HDAC3 mutants can rescue hepatosteatosis and repress lipogenic genes expression in HDAC3-depleted mouse liver, demonstrating that histone acetylation is insufficient to activate gene transcription. Mutations abolishing interactions with the nuclear receptor corepressor (NCOR or SMRT) render HDAC3 nonfunctional in vivo. Additionally, liver-specific knockout of NCOR, but not SMRT, causes metabolic and transcriptomal alterations resembling those of mice without hepatic HDAC3, demonstrating that interaction with NCOR is essential for deacetylase-independent function of HDAC3. These findings highlight nonenzymatic roles of a major HDAC in transcriptional regulation in vivo and warrant reconsideration of the mechanism of action of HDAC inhibitors.