The interface between cellular systems involving small noncoding RNAs and epigenetic change remains largely unexplored in metazoans. RNA-induced silencing systems have the potential to target particular regions of the genome for epigenetic change by locating specific sequences and recruiting chromatin modifiers. Noting that several genes encoding RNA silencing components have been implicated in epigenetic regulation in Drosophila, we sought a direct link between the RNA silencing system and heterochromatin components. Here we show that PIWI, an ARGONAUTE/PIWI protein family member that binds to Piwi-interacting RNAs (piRNAs), strongly and specifically interacts with heterochromatin protein 1a (HP1a), a central player in heterochromatic gene silencing. The HP1a dimer binds a PxVxL-type motif in the N-terminal domain of PIWI. This motif is required in fruit flies for normal silencing of transgenes embedded in heterochromatin. We also demonstrate that PIWI, like HP1a, is itself a chromatin-associated protein whose distribution in polytene chromosomes overlaps with HP1a and appears to be RNA dependent. These findings implicate a direct interaction between the PIWI-mediated small RNA mechanism and heterochromatin-forming pathways in determining the epigenetic state of the fly genome.