The Drosophila Snail protein is a transcriptional repressor that is necessary for mesoderm formation. Here, we identify the Ebi protein as an essential Snail co-repressor. In ebi mutant embryos, Snail target genes are derepressed in the presumptive mesoderm. Ebi and Snail interact both genetically and physically. We identify a Snail domain that is sufficient for Ebi binding, and which functions independently of another Snail co-repressor, Drosophila CtBP. This Ebi interaction domain is conserved among all insect Snail-related proteins, is a potent repression domain and is required for Snail function in transgenic embryos. In mammalian cells, the Ebi homologue TBL1 is part of the NCoR/SMRT-HDAC3 (histone deacetylase 3) co-repressor complex. We found that Ebi interacts with Drosophila HDAC3, and that HDAC3 knockdown or addition of a HDAC inhibitor impairs Snail-mediated repression in cells. In the early embryo, Ebi is recruited to a Snail target gene in a Snail-dependent manner, which coincides with histone hypoacetylation. Our results demonstrate that Snail requires the combined activities of Ebi and CtBP, and indicate that histone deacetylation is a repression mechanism in early Drosophila development.