The higher-order assembly of chromatin imposes structural organization on the genetic information of eukaryotes and is thought to be largely determined by posttranslational modification of histone tails. Here, we study a 20-kilobase silent domain at the mating-type region of fission yeast as a model for heterochromatin formation. We find that, although histone H3 methylated at lysine 9 (H3 Lys9) directly recruits heterochromatin protein Swi6/HP1, the critical determinant for H3 Lys9 methylation to spread in cis and to be inherited through mitosis and meiosis is Swi6 itself. We demonstrate that a centromere-homologous repeat (cenH) present at the silent mating-type region is sufficient for heterochromatin formation at an ectopic site, and that its repressive capacity is mediated by components of the RNA interference (RNAi) machinery. Moreover, cenH and the RNAi machinery cooperate to nucleate heterochromatin assembly at the endogenous mat locus but are dispensable for its subsequent inheritance. This work defines sequential requirements for the initiation and propagation of regional heterochromatic domains.