In fission yeast, factors involved in the RNA interference (RNAi) pathway including Argonaute, Dicer, and RNA-dependent RNA polymerase are required for heterochromatin assembly at centromeric repeats and the silent mating-type region. Previously, we have shown that RNA-induced initiation of transcriptional gene silencing (RITS) complex containing the Argonaute protein and small interfering RNAs (siRNAs) localizes to heterochromatic loci and collaborates with heterochromatin assembly factors via a self-enforcing RNAi loop mechanism to couple siRNA generation with heterochromatin formation. Here, we investigate the role of RNA-dependent RNA polymerase (Rdp1) and its polymerase activity in the assembly of heterochromatin. We find that Rdp1, similar to RITS, localizes to all known heterochromatic loci, and its localization at centromeric repeats depends on components of RITS and Dicer as well as heterochromatin assembly factors including Clr4/Suv39h and Swi6/HP1 proteins. We show that a point mutation within the catalytic domain of Rdp1 abolished its RNA-dependent RNA polymerase activity and resulted in the loss of transcriptional silencing and heterochromatin at centromeres, together with defects in mitotic chromosome segregation and telomere clustering. Moreover, the RITS complex in the rdp1 mutant does not contain siRNAs, and is delocalized from centromeres. These results not only implicate Rdp1 as an essential component of a self-enforcing RNAi loop but also ascribe a critical role for its RNA-dependent RNA polymerase activity in siRNA production necessary for heterochromatin formation.