Transcription of eukaryotic genomes is more widespread than was previously anticipated and results in the production of many non-protein-coding RNAs (ncRNAs) whose functional relevance is poorly understood. Here we demonstrate that ncRNAs can counteract the encroachment of heterochromatin into neighboring euchromatin. We have identified a long ncRNA (termed BORDERLINE) that prevents spreading of the HP1 protein Swi6 and histone H3 Lys9 methylation beyond the pericentromeric repeat region of Schizosaccharomyces pombe chromosome 1. BORDERLINE RNAs act in a sequence-independent but locus-dependent manner and are processed by Dicer into short RNAs referred to as brdrRNAs. In contrast to canonical centromeric short interfering RNAs, brdrRNAs are rarely loaded onto Argonaute. Our analyses reveal an unexpected regulatory activity of ncRNAs in demarcating an epigenetically distinct chromosomal domain that could also be operational in other eukaryotes. 