Fission yeast centromeres are transcriptionally silent and form a heterochromatin-like structure essential for normal centromere function; this appears analogous to heterochromatin and position effect variegation in other eukaryotes. Conditional mutations in three genes designated cep (centromere enhancer of position effect) were found to enhance transcriptional silencing within centromeres. Cloning of the cep1(+) and cep2(+) genes by functional complementation revealed that they are identical to the previously described genes pad1(+) and mts2(+), respectively, which both encode subunits of the proteasome 19S cap. Like Mts2 and Mts4, epitope-tagged Cep1/Pad1 localizes to or near the nuclear envelope throughout the cell cycle. The cep mutants display a range of phenotypes depending on the temperature. Silencing within the central domain of centromeres is increased at 36 degrees C. This suggests that the proteasome is involved in regulating silencing and thus centromeric chromatin architecture, possibly by lowering the level of some chromatin-associated protein by ubiquitin-dependent degradation. This is the first report of defective proteasome function affecting heterochromatin-mediated transcriptional silencing. At 36 and 32 degrees C, the cep mutants lose chromosomes at an elevated rate, and at 18 degrees C, the mutants are cryosensitive for growth. Cytological analysis at 18 degrees C revealed a defect in sister chromatid separation while other mitotic events occurred normally, indicating that cep mutations might interfere specifically with the degradation of inhibitor(s) of sister chromatid separation. These observations suggest that 19S subunits confer a level of substrate specificity on the proteasome and raise the possibility of a link between components involved in centromere architecture and sister chromatid cohesion.