Heritable inactivation of specific regions of the genome is a widespread, possibly universal phenomenon for gene regulation in eukaryotes. Self-perpetuating, clonally inherited chromatin structure has been proposed as the explanation for such phenomena as position-effect variegation (PEV) and control of segment determination and differentiation in flies, X-chromosome inactivation and parental imprinting in mammals, gene silencing by paramutation in maize and silencing of the mating-type loci in yeasts. We have now found that the clr4 gene, which is essential for silencing of centromeres and the mating-type loci in Schizosaccharomyces pombe, encodes a protein with high homology to the product of Su(var)3-9, a gene affecting PEV in Drosophila. Like Su(var)3-9p, Clr4p contains SET and chromo domains, motifs found in proteins that modulate chromatin structure. Site-directed mutations in the conserved residues of the chromo domain confirm that it is required for proper silencing and directional switching of the mating type, like SET domain. Surprisingly, RNA differential display experiments demonstrated that clr4+ can mediate transcriptional activation of certain other loci. These results show that clr4 plays a critical role in silencing at mating-type loci and centromeres through the organization of repressive chromatin structure and demonstrate a new, activator function for Clr4p.