The expression of short hairpin RNAs in several organisms silences gene expression by targeted mRNA degradation. This RNA interference (RNAi) pathway can also affect the genome, as DNA methylation arises at loci homologous to the target RNA in plants. We demonstrate in fission yeast that expression of a synthetic hairpin RNA is sufficient to silence the homologous locus in trans and causes the assembly of a patch of silent Swi6 chromatin with cohesin. This requires components of the RNAi machinery and Clr4 histone methyltransferase for small interfering RNA generation. A similar process represses several meiotic genes through nearby retrotransposon long terminal repeats (LTRs). These analyses directly implicate interspersed LTRs in regulating gene expression during cellular differentiation.