Induction of gene expression in yeast and human cells involves changes in the histone modifications associated with promoters. Here we identify a histone H3 endopeptidase activity in Saccharomyces cerevisiae that may regulate these events. The endopeptidase cleaves H3 after Ala21, generating a histone that lacks the first 21 residues and shows a preference for H3 tails carrying repressive modifications. In vivo, the H3 N terminus is clipped, specifically within the promoters of genes following the induction of transcription. H3 clipping precedes the process of histone eviction seen when genes become fully active. A truncated H3 product is not generated in yeast carrying a mutation of the endopeptidase recognition site (H3 Q19A L20A) and gene induction is defective in these cells. These findings identify clipping of H3 tails as a previously uncharacterized modification of promoter-bound nucleosomes, which may result in the localized clearing of repressive signals during the induction of gene expression.