The Saccharomyces cerevisiae silencing protein Sir2 is the founding member of a universally conserved family of proteins that have been shown to possess NAD-dependent histone deacetylation and ADP-ribosylation activities. Here we show that histone deacetylation by Sir2 is coupled to cleavage of the high-energy bond that links the ADP-ribose moiety of NAD to nicotinamide. Analysis of the NAD cleavage products revealed the presence of nicotinamide, ADP-ribose, and a third product that appeared to be related to ADP-ribose. With the use of label transfer experiments, we show that the acetyl group in the histone substrate is transferred to this NAD breakdown product during deacetylation, forming a product that we conclude to be O-acetyl-ADP-ribose. Detection of this species strongly argues for obligate coupling of histone deacetylation to NAD breakdown by Sir2. We propose reaction mechanisms that could account for this coupling via acetyl-ADP-ribose formation. The unprecedented coupling of amide bond cleavage to cleavage of a high-energy bond raises the possibility that NAD breakdown by Sir2 plays an important role in silencing that is independent of its requirement for deacetylation.