Heterochromatin is the tightly packaged dynamic region of the eukaryotic chromosome that plays a vital role in cellular processes such as mitosis and meiotic recombination. Recent experiments in Schizosaccharomyces pombe have revealed the structure of centromeric heterochromatin is affected in RNAi pathway mutants. It has also been shown in fission yeast that the heterochromatin barrier is traversed by RNA Pol II and that the passage of RNA Pol II through heterochromatin is important for heterochromatin structure. Thus, an intricate interaction between the RNAi machinery and RNA Pol II affects heterochromatin structure. However, the role of the RNAi machinery and RNA Pol II on the metazoan heterochromatin landscape is not known. This study analyses the interaction of the small RNA machinery and RNA Pol II on Drosophila heterochromatin structure. The results in this paper show genetic and biochemical interaction between RNA Pol II (largest and second largest subunit) and small RNA silencing machinery components (dcr-2, ago1, ago2, piwi, Lip [D], aub and hls). Immunofluorescence analysis of polytene chromosomes from trans-heterozygotes of RNA Pol II and different mutations of the small RNA pathways show decreased H3K9me2 and mislocalization of Heterochromatin protein-1. A genetic analysis performed on these mutants showed a strong suppression of white-mottled4h position effect variegation. This was further corroborated by a western blot analysis and chromatin immunoprecipitation, which showed decreased H3K9me2 in trans-heterozygote mutants compared to wild type or single heterozygotes. Co-immunoprecipitation performed using Drosophila embryo extracts showed the RNA Pol II largest subunit interacting with Dcr-2 and dAGO1. Co-localization performed on polytene chromosomes showed RNA Pol II and dAGO1 overlapping at some sites. Our experiments show a genetic and biochemical interaction between RNA Pol II (largest and second largest subunits) and the small RNA silencing machinery in Drosophila. The interaction has functional aspects in terms of determining H3K9me2 and HP-1 deposition at the chromocentric heterochromatin. Thus, RNA Pol II has an important role in establishing heterochromatin structure in Drosophila.