Neuronal activity drives alterations in gene expression within neurons, yet how it directs transcriptional and epigenomic changes in neighboring astrocytes in functioning circuits is unknown. We found that neuronal activity induces widespread transcriptional up-regulation and down-regulation in astrocytes, highlighted by the identification of Slc22a3 as an activity-inducible astrocyte gene that encodes neuromodulator transporter Slc22a3 and regulates sensory processing in the mouse olfactory bulb. Loss of astrocytic Slc22a3 reduced serotonin levels in astrocytes, leading to alterations in histone serotonylation. Inhibition of histone serotonylation in astrocytes reduced the expression of γ-aminobutyric acid (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.