Yeast Rpd3 histone deacetylase plays an important role at actively transcribed genes. We characterized two distinct Rpd3 complexes, Rpd3L and Rpd3S, by MudPIT analysis. Both complexes shared a three subunit core and Rpd3L contains unique subunits consistent with being a promoter targeted corepressor. Rco1 and Eaf3 were subunits specific to Rpd3S. Mutants of RCO1 and EAF3 exhibited increased acetylation in the FLO8 and STE11 open reading frames (ORFs) and the appearance of aberrant transcripts initiating within the body of these ORFs. Mutants in the RNA polymerase II-associated SET2 histone methyltransferase also displayed these defects. Set2 functioned upstream of Rpd3S and the Eaf3 methyl-histone binding chromodomain was important for recruitment of Rpd3S and for deacetylation within the STE11 ORF. These data indicate that Pol II-associated Set2 methylates H3 providing a transcriptional memory which signals for deacetylation of ORFs by Rpd3S. This erases transcription elongation-associated acetylation to suppress intragenic transcription initiation.