Histone deacetylases (HDAC) 1 and 2 are highly similar enzymes that help regulate chromatin structure as the core catalytic components of corepressor complexes. Although tissue-specific deletion of HDAC1 and HDAC2 has demonstrated functional redundancy, germ-line deletion of HDAC1 in the mouse causes early embryonic lethality, whereas HDAC2 does not. To address the unique requirement for HDAC1 in early embryogenesis we have generated conditional knockout embryonic stem (ES) cells in which HDAC1 or HDAC2 genes can be inactivated. Deletion of HDAC1, but not HDAC2, causes a significant reduction in the HDAC activity of Sin3A, NuRD, and CoREST corepressor complexes. This reduced corepressor activity results in a specific 1.6-fold increase in histone H3 K56 acetylation (H3K56Ac), thus providing genetic evidence that H3K56Ac is a substrate of HDAC1. In culture, ES cell proliferation was unaffected by loss of either HDAC1 or HDAC2. Rather, we find that loss of HDAC1 affects ES cell differentiation. ES cells lacking either HDAC1 or HDAC2 were capable of forming embryoid bodies (EBs), which stimulates differentiation into the three primary germ layers. However, HDAC1-deficient EBs were significantly smaller, showed spontaneous rhythmic contraction, and increased expression of both cardiomyocyte and neuronal markers. In summary, our genetic study of HDAC1 and HDAC2 in ES cells, which mimic the embryonic epiblast, has identified a unique requirement for HDAC1 in the optimal activity of HDAC1/2 corepressor complexes and cell fate determination during differentiation.