Transforming growth factor‐β (TGF‐β) inhibits osteoblast differentiation through inhibition of the function of Runx2 (Cbfa1) by Smad3. The mechanism through which TGF‐β/Smad3 inhibits Runx2 function has not been characterized. We show that TGF‐β induces histone deacetylation, primarily of histone H4, at the osteocalcin promoter, which is repressed by TGF‐β, and that histone deacetylation is required for repression of Runx2 by TGF‐β. This repression occurs through the action of the class IIa histone deacetylases (HDAC)4 and 5, which are recruited through interaction with Smad3 to the Smad3/Runx2 complex at the Runx2‐binding DNA sequence. Accordingly, HDAC4 or 5 is required for efficient TGF‐β‐mediated inhibition of Runx2 function and is involved in osteoblast differentiation. Our results indicate that class IIa HDACs act as corepressors for TGF‐β/Smad3‐mediated transcriptional repression of Runx2 function in differentiating osteoblasts and are cell‐intrinsic regulators of osteoblast differentiation.