Various post-translational modifications of histones significantly influence gene transcription. Although un- or hypoacetylated histones are tightly linked to transcriptional repression, the mechanisms and identities of chromatin signal transducer proteins integrating histone hypoacetylation into repression in humans have remained largely unknown. Here we show that the mammalian histone-binding proteins and inhibitor of acetyltransferases (INHAT) complex subunits, Set/template-activating factor-Ibeta (TAF-Ibeta) and pp32, specifically bind to unacetylated, hypoacetylated, and repressively marked histones but not to hyperacetylated histones. Additionally, Set/TAF-Ibeta and pp32 associate with histone deacetylases in vitro and in vivo and repress transcription from a chromatin-integrated template in vivo. Finally, Set/TAF-Ibeta and pp32 associate with an endogenous estrogen receptor-regulated gene, EB1, in the hypoacetylated transcriptionally inactive state but not with the hyperacetylated transcriptionally active form. Together, these data define a novel in vivo mechanistic role for the mammalian Set/TAF-Ibeta and pp32 proteins as transducers of chromatin signaling by integrating chromatin hypoacetylation and transcriptional repression.