Preadipocyte differentiation in culture is driven by an insulin and cAMP dependant transcriptional cascade which induces the bzip transcription factors C/EBPbeta and C/EBPdelta. We have previously shown that glucocorticoid treatment, which strongly potentiates this differentiation pathway, stimulates the titration of the corepressor histone deacetylase 1 (HDAC1) from C/EBPbeta. This results in a dramatic enhancement of C/EBPbeta-dependent transcription from the C/EBPalpha promoter, concomitant with potentiation of preadipocyte differentiation. Here, we show that C/EBPbeta is acetylated by GCN5 and PCAF within a cluster of lysine residues between amino acids 98-102 and that this acetylation is strongly induced by glucocorticoid treatment. Arginine substitution of the lysine residues within the acetylation motif of C/EBPbeta prevented acetylation and blocked the ability of glucocorticoids to enhance C/EBPbeta-directed transcription and to potentiate C/EBPbeta-dependent preadipocyte differentiation. Moreover, acetylation of C/EBPbeta appeared to directly interfere with the interaction of HDAC1 with C/EBPbeta, suggesting that PCAF/GCN5-dependent acetylation of C/EBPbeta serves as an important molecular switch in determining the transcriptional regulatory potential of this transcription factor.