Heterochromatin is an epigenetically heritable and conserved feature of eukaryotic chromosomes with important roles in chromosome segregation, genome stability, and gene regulation. The formation of heterochromatin involves an ordered array of chromatin changes, including histone deacetylation, histone H3-lysine 9 methylation, and recruitment of histone binding proteins such as Swi6/HP1. Recent discoveries have uncovered a role for the RNA interference (RNAi) pathway in heterochromatin assembly in the fission yeast Schizosaccharomyces pombe and other eukaryotes. Purification of two RNAi complexes, RITS and RDRC, from fission yeast has provided further insight into the mechanism of RNAi-mediated heterochromatin assembly. These discoveries have given rise to a model in which small interfering RNA molecules act as specificity factors that initiate epigenetic chromatin modifications and double strand RNA synthesis at specific chromosome regions.