HP1 proteins are a highly conserved family of eukaryotic proteins that bind to methylated histone H3 lysine 9 (H3K9) and are required for heterochromatic gene silencing. In fission yeast, two HP1 homologs, Swi6 and Chp2, function in heterochromatic gene silencing, but their relative contribution to silencing remains unknown. Here we show that Swi6 and Chp2 exist in nonoverlapping complexes and make distinct contributions to silencing. Chp2 associates with the SHREC histone deacetylase complex (SHREC2), is required for histone H3 lysine 14 (H3K14) deacetylation, and mediates transcriptional repression by limiting RNA polymerase II access to heterochromatin. In contrast, Swi6 associates with a different set of nuclear proteins and with noncoding centromeric transcripts and is required for efficient RNAi-dependent processing of these transcripts. Our findings reveal an unexpected role for Swi6 in RNAi-mediated gene silencing and suggest that different HP1 proteins ensure full heterochromatic gene silencing through largely nonoverlapping inhibitory mechanisms.