CREB-binding protein (CBP) possesses an intrinsic acetyltransferase activity capable of acetylating nucleosomal histones as well as several nonhistone proteins. Here, it is shown that CBP can acetylate hepatocyte nuclear factor-4 (HNF-4), a member of the nuclear hormone receptor family, at lysine residues within the nuclear localization sequence. CBP-mediated acetylation is crucial for the proper nuclear retention of HNF-4, which is otherwise transported out to the cytoplasm via the CRM1 pathway. Acetylation also increases HNF-4 DNA binding activity and its affinity of interaction with CBP itself and is required for target gene activation. The results show that acetylation is a key posttranslational modification that may affect several properties of a transcription factor critical for the execution of its biological functions.