Histone modifications play an important role in shaping chromatin structure. Here, we describe the use of an in vitro chromatin assembly system from Drosophila embryo extracts to investigate the dynamic changes of histone modifications subsequent to histone deposition. In accordance with what has been observed in vivo, we find a deacetylation of the initially diacetylated isoform of histone H4, which is dependent on chromatin assembly. Immediately after deposition of the histones onto DNA, H4 is monomethylated at K20, which is required for an efficient deacetylation of the H4 molecule. H4K20 methylation-dependent dl(3)MBT association with chromatin and the identification of a dl(3)MBT-dRPD3 complex suggest that a deacetylase is specifically recruited to the monomethylated substrate through interaction with dl(3)MBT. Our data demonstrate that histone modifications are added and removed during chromatin assembly in a highly regulated manner.