In plants, animals and fungi, active centromeres are associated with arrays of repetitive DNA sequences. The outer repeats at fission yeast (Schizosaccharomyces pombe) centromeres are heterochromatic and are required for the assembly of an active centromere. Components of the RNA interference (RNAi) machinery process transcripts derived from these repeats and mediate the formation of silent chromatin. A subfragment of the repeat (dg) is known to induce silencing of marker genes at euchromatic sites and is required for centromere formation. We show that the RNAi components, Argonaute (Ago1), Dicer (Dcr1) and RNA-dependent RNA polymerase (Rdp1), are required to maintain silencing, lysine 9 methylation of histone H3 and association of Swi6 via this dg ectopic silencer. Deletion of Ago1, Dcr1 or Rdp1 disrupts chromosome segregation leading to a high incidence of lagging chromosomes on late anaphase spindles and sensitivity to a microtubule poison. Analysis of dg transcription indicates that csp mutants, previously shown to abrogate centromere silencing and chromosome segregation, are also defective in the regulation of non-coding centromeric RNAs. In addition, histone H3 lysine 9 methylation at, and recruitment of Swi6 and cohesin to, centromeric repeats is disrupted in these mutants. Thus the formation of silent chromatin on dg repeats and the development of a fully functional centromere is dependent on RNAi.