The organization of DNA into heterochromatin domains is critical for a variety of chromosomal functions, including gene silencing, recombination suppression, and chromosome segregation. In fission yeast, factors involved in the RNAi pathway such as Argonaute, Dicer, and RNA-dependent RNA polymerase are required for assembly of heterochromatin structures. The RNAi Argonaute-containing RITS complex and RNA-dependent RNA polymerase localize throughout heterochromatin domains. These factors are important components of a self-reinforcing loop mechanism operating in cis to process repeat transcripts into siRNAs, which involve in heterochromatin assembly. In this paper, we describe our results suggesting that slicing of repeat transcripts by the Argonaute is an important step in their conversion into siRNAs and heterochromatic silencing. Mutations in conserved residues known to be essential for slicer activity of Argonautes result in loss of siRNAs corresponding to centromeric repeats, accumulation of repeat transcripts, and defects in heterochromatin assembly. We also discuss our recent finding that heterochromatin proteins such as Swi6/HP1 serve as a platform that could recruit both silencing and antisilencing factors to heterochromatic loci.