Histone deacetylases (HDACs) execute biological regulation through post-translational modification of chromatin and other cellular substrates. In humans, there are eleven HDACs, organized into three distinct subfamilies. This large number of HDACs raises questions about functional overlap and division of labor among paralogs. In vivo roles are simpler to address in Drosophila, where there are only five HDAC family members and only two are implicated in transcriptional control. Of these two, HDAC1 has been characterized genetically, but its most closely related paralog, HDAC3, has not. Here we describe the isolation and phenotypic characterization of hdac3 mutations. We find that both hdac3 and hdac1 mutations are dominant suppressors of position effect variegation, suggesting functional overlap in heterochromatin regulation. However, all five hdac3 loss-of-function alleles are recessive lethal during larval/pupal stages, indicating that HDAC3 is essential on its own for Drosophila development. The mutant larvae display small imaginal discs, which result from abnormally elevated levels of apoptosis. This cell death occurs as a cell-autonomous response to HDAC3 loss and is accompanied by increased expression of the pro-apoptotic gene, hid. In contrast, although HDAC1 mutants also display small imaginal discs, this appears to result from reduced proliferation rather than from elevated apoptosis. The connection between HDAC loss and apoptosis is important since HDAC inhibitors show anticancer activities in animal models through mechanisms involving apoptotic induction. However, the specific HDACs implicated in tumor cell killing have not been identified. Our results indicate that protein deacetylation by HDAC3 plays a key role in suppression of apoptosis in Drosophila imaginal tissue.