Valproic acid is widely used to treat epilepsy and bipolar disorder and is also a potent teratogen, but its mechanisms of action in any of these settings are unknown. We report that valproic acid activates Wntdependent gene expression, similar to lithium, the mainstay of therapy for bipolar disorder. Valproic acid, however, acts through a distinct pathway that involves direct inhibition of histone deacetylase (IC(50) for HDAC1 = 0.4 mm). At therapeutic levels, valproic acid mimics the histone deacetylase inhibitor trichostatin A, causing hyperacetylation of histones in cultured cells. Valproic acid, like trichostatin A, also activates transcription from diverse exogenous and endogenous promoters. Furthermore, valproic acid and trichostatin A have remarkably similar teratogenic effects in vertebrate embryos, while non-teratogenic analogues of valproic acid do not inhibit histone deacetylase and do not activate transcription. Based on these observations, we propose that inhibition of histone deacetylase provides a mechanism for valproic acid-induced birth defects and could also explain the efficacy of valproic acid in the treatment of bipolar disorder.