Histone deacetylases (HDACs) are key transcription regulators that function by deacetylating histones/transcription factors and modifying chromatin structure. In this work, we showed that chemical inhibition of HDACs by valproic acid (VPA) led to impaired liver development in zebrafish mainly by inhibiting specification, budding, and differentiation. Formation of exocrine pancreas but not endocrine pancreas was also inhibited. The liver defects induced by VPA correlate with suppressed total HDAC enzymatic activity, but are independent of angiogenesis inhibition. Gene knockdown by morpholino demonstrated that hdac3 is specifically required for liver formation while hdac1 is more globally required for multiple development processes in zebrafish including liver/exocrine pancreas formation. Furthermore, overexpression of hdac3 but not hdac1 partially rescued VPA induced small liver. One mechanism by which hdac3 regulates zebrafish liver growth is through inhibiting growth differentiation factor 11 (gdf11), a unique target of hdac3 and a member of the transforming growth factor beta family. Simultaneous overexpression or morpholino knockdown showed that hdac3 and gdf11 function antagonistically in zebrafish liver development. These results revealed a novel and specific role of hdac3 in liver development and the distinct functions between hdac1 and hdac3 in zebrafish embryonic development.