Post-translational modifications of proteins have emerged as a major mechanism for regulating gene expression. However, our understanding of how histone modifications directly affect chromatin function remains limited. In this study, we investigate acetylation of histone H3 at lysine 64 (H3K64ac), a previously uncharacterized acetylation on the lateral surface of the histone octamer. We show that H3K64ac regulates nucleosome stability and facilitates nucleosome eviction and hence gene expression in vivo. In line with this, we demonstrate that H3K64ac is enriched in vivo at the transcriptional start sites of active genes and it defines transcriptionally active chromatin. Moreover, we find that the p300 co-activator acetylates H3K64, and consistent with a transcriptional activation function, H3K64ac opposes its repressive counterpart H3K64me3. Our findings reveal an important role for a histone modification within the nucleosome core as a regulator of chromatin function and they demonstrate that lateral surface modifications can define functionally opposing chromatin states. DOI: http://dx.doi.org/10.7554/eLife.01632.001.