Epigenetic gene silencing plays a critical role in regulating gene expression and contributes to organismal development and cell fate acquisition in eukaryotes. In fission yeast, Schizosaccharomyces pombe, heterochromatin-associated gene silencing is known to be mediated by RNA processing pathways including RNA interference (RNAi) and a 3'-5' exoribonuclease complex, the exosome. Here, we report a new RNA-processing pathway that contributes to epigenetic gene silencing and assembly of heterochromatin mediated by 5'-3' exoribonuclease Dhp1/Rat1/Xrn2. Dhp1 mutation causes defective gene silencing both at peri-centromeric regions and at the silent mating type locus. Intriguingly, mutation in either of the two well-characterized Dhp1-interacting proteins, the Din1 pyrophosphohydrolase or the Rhn1 transcription termination factor, does not result in silencing defects at the main heterochromatic regions. We demonstrate that Dhp1 interacts with heterochromatic factors and is essential in the sequential steps of establishing silencing in a manner independent of both RNAi and the exosome. Genomic and genetic analyses suggest that Dhp1 is involved in post-transcriptional silencing of repetitive regions through its RNA processing activity. The results describe the unexpected role of Dhp1/Rat1/Xrn2 in chromatin-based silencing and elucidate how various RNA-processing pathways, acting together or independently, contribute to epigenetic regulation of the eukaryotic genome. 