In quantum mechanics, observing is not a passive act. Consider a system of two quantum particles A and B: if a measurement apparatus M is used to make an observation on B, the overall state of the system AB will typically be altered. When this happens, no matter which local measurement is performed, the two objects A and B are revealed to possess peculiar correlations known as quantum discord. Here, we demonstrate experimentally that the very act of local observation gives rise to an activation protocol which converts discord into distillable entanglement, a stronger and more useful form of quantum correlations, between the apparatus M and the composite system AB. We adopt a flexible two-photon setup to realize a three-qubit system (A, B, M) with programmable degrees of initial correlations, measurement interaction, and characterization processes. Our experiment demonstrates the fundamental mechanism underpinning the ubiquitous act of observing the quantum world and establishes the potential of discord in entanglement generation.