Developmental signals in metazoans play critical roles in inducing cell differentiation from multipotent progenitors. The existing paradigm posits that the signals operate directly through their downstream transcription factors to activate expression of cell type-specific genes, which are the hallmark of cell identity. We have investigated the mechanism through which Wnt signaling induces osteoblast differentiation in an osteoblast-adipocyte bipotent progenitor cell line. Unexpectedly, Wnt3a acutely suppresses the expression of a large number of genes while inducing osteoblast differentiation. The suppressed genes include Pparg and Cebpa, which encode adipocyte-specifying transcription factors and suppression of which is sufficient to induce osteoblast differentiation. The large scale gene suppression induced by Wnt3a corresponds to a global decrease in histone acetylation, an epigenetic modification that is associated with gene activation. Mechanistically, Wnt3a does not alter histone acetyltransferase or deacetylase activities but, rather, decreases the level of acetyl-CoA in the nucleus. The Wnt-induced decrease in histone acetylation is independent of β-catenin signaling but, rather, correlates with suppression of glucose metabolism in the tricarboxylic acid cycle. Functionally, preventing histone deacetylation by increasing nucleocytoplasmic acetyl-CoA levels impairs Wnt3a-induced osteoblast differentiation. Thus, Wnt signaling induces osteoblast differentiation in part through histone deacetylation and epigenetic suppression of an alternative cell fate.