Genes normally resident in euchromatic domains are silenced when packaged into heterochromatin, as exemplified in Drosophila melanogaster by position effect variegation (PEV). Loss-of-function mutations resulting in suppression of PEV have identified critical components of heterochromatin, including proteins HP1, HP2, and histone H3 lysine 9 methyltransferase. Here, we demonstrate that this silencing is dependent on the RNA interference machinery, using tandem mini-white arrays and white transgenes in heterochromatin to show loss of silencing as a result of mutations in piwi, aubergine, or spindle-E (homeless), which encode RNAi components. These mutations result in reduction of H3 Lys9 methylation and delocalization of HP1 and HP2, most dramatically in spindle-E mutants.