Despite their classical role as transcriptional repressors, several histone deacetylases, including the baker's yeast Set3/Hos2 complex (Set3C), facilitate gene expression. In the dimorphic human pathogen Candida albicans, the homologue of the Set3C inhibits the yeast-to-filament transition, but the precise molecular details of this function have remained elusive. Here, we use a combination of ChIP-Seq and RNA-Seq to show that the Set3C acts as a transcriptional co-factor of metabolic and morphogenesis-related genes in C. albicans. Binding of the Set3C correlates with gene expression during fungal morphogenesis; yet, surprisingly, deletion of SET3 leaves the steady-state expression level of most genes unchanged, both during exponential yeast-phase growth and during the yeast-filament transition. Fine temporal resolution of transcription in cells undergoing this transition revealed that the Set3C modulates transient expression changes of key morphogenesis-related genes. These include a transcription factor cluster comprising of NRG1, EFG1, BRG1, and TEC1, which form a regulatory circuit controlling hyphal differentiation. Set3C appears to restrict the factors by modulating their transcription kinetics, and the hyperfilamentous phenotype of SET3-deficient cells can be reverted by mutating the circuit factors. These results indicate that the chromatin status at coding regions represents a dynamic platform influencing transcription kinetics. Moreover, we suggest that transcription at the coding sequence can be transiently decoupled from potentially conflicting promoter information in dynamic environments. © 2012 Hnisz et al.