Neuronal activity drives global alterations in gene expression within neurons, yet how it directs transcriptional and epigenomic changes in neighboring astrocytes in functioning circuits is unknown. Here we show that neuronal activity induces widespread transcriptional upregulation and downregulation in astrocytes, highlighted by the identification of a neuromodulator transporter Slc22a3 as an activity-inducible astrocyte gene regulating sensory processing in the olfactory bulb. Loss of astrocytic Slc22a3 reduces serotonin levels in astrocytes, leading to alterations in histone serotonylation. Inhibition of histone serotonylation in astrocytes reduces expression of GABA biosynthetic genes and GABA release, culminating in olfactory deficits. Our study reveals that neuronal activity orchestrates transcriptional and epigenomic responses in astrocytes, while illustrating new mechanisms for how astrocytes process neuromodulatory input to gate neurotransmitter release for sensory processing.