Set2-mediated methylation of histone H3 at Lys 36 (H3K36me) is a co-transcriptional event that is necessary for the activation of the Rpd3S histone deacetylase complex, thereby maintaining the coding region of genes in a hypoacetylated state(1,2). In the absence of Set2, H3K36 or Rpd3S acetylated histones accumulate on open reading frames (ORFs), leading to transcription initiation from cryptic promoters within ORFs(1,3). Although the co-transcriptional deacetylation pathway is well characterized, the factors responsible for acetylation are as yet unknown. Here we show that, in yeast, co-transcriptional acetylation is achieved in part by histone exchange over ORFs. In addition to its function of targeting and activating the Rpd3S complex, H3K36 methylation suppresses the interaction of H3 with histone chaperones, histone exchange over coding regions and the incorporation of new acetylated histones. Thus, Set2 functions both to suppress the incorporation of acetylated histones and to signal for the deacetylation of these histones in transcribed genes. By suppressing spurious cryptic transcripts from initiating within ORFs, this pathway is essential to maintain the accuracy of transcription by RNA polymerase II.