Histone deacetylases (HDACs) are chromatin-modifying enzymes that are involved in the regulation of proliferation, differentiation and development. HDAC inhibitors induce cell cycle arrest, differentiation, or apoptosis in tumor cells and are therefore promising antitumor agents. Numerous genes were found to be deregulated upon HDAC inhibitor treatment; however, the relevant target enzymes are still unidentified. HDAC1 is required for mouse development and unrestricted proliferation of embryonic stem cells. We show here that HDAC1 reversibly regulates cellular proliferation and represses the cyclin-dependent kinase inhibitor p21 in embryonic stem cells. Disruption of the p21 gene rescues the proliferation phenotype of HDAC1(-/-) embryonic stem cells but not the embryonic lethality of HDAC1(-/-) mice. In the absence of HDAC1, mouse embryonic fibroblasts scarcely undergo spontaneous immortalization and display increased p21 expression. Chromatin immunoprecipitation assays demonstrate a direct regulation of the p21 gene by HDAC1 in mouse embryonic fibroblasts. Transformation with simian virus 40 large T antigen or ablation of p21 restores normal immortalization of primary HDAC1(-/-) fibroblasts. Our data demonstrate that repression of the p21 gene is crucial for HDAC1-mediated control of proliferation and immortalization. HDAC1 might therefore be one of the relevant targets for HDAC inhibitors as anticancer drugs.