YY1 is a transcription factor that can activate or repress transcription of a variety of genes and is involved in several developmental processes. YY1 is a repressor of transcription in differentiated H9C2 cells and in neonatal cardiac myocytes but an activator of transcription in undifferentiated H9C2 cells. We now present a detailed analysis of the functional domains of YY1 when it is acting as a repressor or an activator and identify the mechanism whereby its function is regulated in the differentiation of H9C2 cells. We show that histone deacetylase 5 (HDAC5) is localized to the cytoplasm in undifferentiated H9C2 cells and that this localization is dependent on Ca(2+)/calmodulin-dependent kinase IV (CaMKIV) and/or protein kinase D (PKD). In differentiated cells, HDAC5 is nuclear and interacts with YY1. Finally, we show that HDAC5 localization in differentiated cells is dependent on phosphatase 2A (PP2A). Our results suggest that a signaling mechanism that involves CaMKIV/PKD and PP2A controls YY1 function through regulation of HDAC5 and is important in the maintenance of muscle differentiation.