Homologs of the chromatin-bound yeast silent information regulator 2 (SIR2) protein are found in organisms from all biological kingdoms. SIR2 itself was originally discovered to influence mating-type control in haploid cells by locus-specific transcriptional silencing. Since then, SIR2 and its homologs have been suggested to play additional roles in suppression of recombination, chromosomal stability, metabolic regulation, meiosis, and aging. Considering the far-ranging nature of these functions, a major experimental goal has been to understand the molecular mechanism(s) by which this family of proteins acts. We report here that members of the SIR2 family catalyze an NAD–nicotinamide exchange reaction that requires the presence of acetylated lysines such as those found in the N termini of histones. Significantly, these enzymes also catalyze histone deacetylation in a reaction that absolutely requires NAD, thereby distinguishing them from previously characterized deacetylases. The enzymes are active on histone substrates that have been acetylated by both chromatin assembly-linked and transcription-related acetyltransferases. Contrary to a recent report, we find no evidence that these proteins ADP-ribosylate histones. Discovery of an intrinsic deacetylation activity for the conserved SIR2 family provides a mechanism for modifying histones and other proteins to regulate transcription and diverse biological processes.