In the conventional model of transcriptional activation, transcription factors bind to response elements and recruit co-factors, including histone acetyltransferases. Contrary to this model, we show that the histone acetyltransferase KAT7 (HBO1/MYST2) is required genome wide for histone H3 lysine 14 acetylation (H3K14ac). Examining neural stem cells, we find that KAT7 and H3K14ac are present not only at transcribed genes but also at inactive genes, intergenic regions, and in heterochromatin. KAT7 and H3K14ac were not required for the continued transcription of genes that were actively transcribed at the time of loss of KAT7 but indispensable for the activation of repressed genes. The absence of KAT7 abrogates neural stem cell plasticity, diverse differentiation pathways, and cerebral cortex development. Re-expression of KAT7 restored stem cell developmental potential. Overexpression of KAT7 enhanced neuron and oligodendrocyte differentiation. Our data suggest that KAT7 prepares chromatin for transcriptional activation and is a prerequisite for gene activation. Display omitted •KAT7 is essential for H3K14 acetylation, neuron, and oligodendrocyte differentiation•KAT7 and H3K14ac are distributed widely in the genome, including in H3K9me3+ domains•Neuronal gene expression program fails to be activated in the absence of KAT7•KAT7 creates a permissive chromatin state for transcriptional activation The role of acetylation of specific histone lysine residues remains unclear. Kueh et al. find that the absence of the lysine acetyltransferase KAT7 in neural stem cells causes loss of H3K14 acetylation, a failure to activate the neuron differentiation gene expression program, and neuronal differentiation.