Congenital heart defects often result from improper differentiation of cardiac progenitor cells. Although transcription factors involved in cardiac progenitor cell differentiation have been described, the associated chromatin modifiers in this process remain largely unknown. Here we show that mouse embryos lacking the chromatin-modifying enzyme histone deacetylase 3 (Hdac3) in cardiac progenitor cells exhibit precocious cardiomyocyte differentiation, severe cardiac developmental defects, upregulation of Tbx5 target genes and embryonic lethality. Hdac3 physically interacts with Tbx5 and modulates its acetylation to repress Tbx5-dependent activation of cardiomyocyte lineage-specific genes. These findings reveal that Hdac3 plays a critical role in cardiac progenitor cells to regulate early cardiogenesis.