Regulation of gene expression by histone-modifying enzymes is essential to control cell fate decisions and developmental processes. Two histone-modifying enzymes, RPD3, a deacetylase, and dKDM5/LID, a demethylase, are present in a single complex, coordinated through the SIN3 scaffold protein. While the SIN3 complex has been demonstrated to have functional histone deacetylase activity, the role of the demethylase dKDM5/LID as part of the complex has not been investigated. Here, we analyzed the developmental and transcriptional activities of dKDM5/LID in relation to SIN3. Knockdown of either Sin3A or lid resulted in decreased cell proliferation in S2 cells and wing imaginal discs. Conditional knockdown of either Sin3A or lid resulted in flies that displayed wing developmental defects. Interestingly, overexpression of dKDM5/LID rescued the wing developmental defect due to reduced levels of SIN3 in female flies, indicating a major role for dKDM5/LID in cooperation with SIN3 during development. Together, these observed phenotypes strongly suggest that dKDM5/LID as part of the SIN3 complex can impact previously uncharacterized transcriptional networks. Transcriptome analysis revealed that SIN3 and dKDM5/LID regulate many common genes. While several genes implicated in cell cycle and wing developmental pathways were affected upon altering the level of these chromatin factors, a significant affect was also observed on genes required to mount an effective stress response. Further, under conditions of induced oxidative stress, reduction of SIN3 and/or dKDM5/LID altered the expression of a greater number of genes involved in cell cycle-related processes relative to normal conditions. This highlights an important role for SIN3 and dKDM5/LID proteins to maintain proper progression through the cell cycle in environments of cellular stress. Further, we find that target genes are bound by both SIN3 and dKDM5/LID, however, histone acetylation, not methylation, plays a predominant role in gene regulation by the SIN3 complex. We have provided genetic evidence to demonstrate functional cooperation between the histone demethylase dKDM5/LID and SIN3. Biochemical and transcriptome data further support functional links between these proteins. Together, the data provide a solid framework for analyzing the gene regulatory pathways through which SIN3 and dKDM5/LID control diverse biological processes in the organism.