Methylation of histone H3 lysine 4 (H3K4me) is an evolutionarily conserved modification whose role in the regulation of gene expression has been extensively studied. In contrast, the function of H3K4 acetylation (H3K4ac) has received little attention because of a lack of tools to separate its function from that of H3K4me. Here we show that, in addition to being methylated, H3K4 is also acetylated in budding yeast. Genetic studies reveal that the histone acetyltransferases (HATs) Gcn5 and Rtt109 contribute to H3K4 acetylation in vivo. Whilst removal of H3K4ac from euchromatin mainly requires the histone deacetylase (HDAC) Hst1, Sir2 is needed for H3K4 deacetylation in heterochomatin. Using genome-wide chromatin immunoprecipitation (ChIP), we show that H3K4ac is enriched at promoters of actively transcribed genes and located just upstream of H3K4 tri-methylation (H3K4me3), a pattern that has been conserved in human cells. We find that the Set1-containing complex (COMPASS), which promotes H3K4me2 and -me3, also serves to limit the abundance of H3K4ac at gene promoters. In addition, we identify a group of genes that have high levels of H3K4ac in their promoters and are inadequately expressed in H3-K4R, but not in set1D mutant strains, suggesting that H3K4ac plays a positive role in transcription. Our results reveal a novel regulatory feature of promoter-proximal chromatin, involving mutually exclusive histone modifications of the same histone residue (H3K4ac and H3K4me).