RNA interference systems depend on the synthesis of small RNA precursors whose sequences define the target spectrum of these silencing pathways. The Drosophila Heterochromatin Protein 1 (HP1) variant Rhino permits transcription of PIWI-interacting RNA (piRNA) precursors within transposon-rich heterochromatic loci in germline cells. Current models propose that Rhino’s specific chromatin occupancy at piRNA source loci is determined by histone marks and maternally inherited piRNAs, but also imply the existence of other, undiscovered specificity cues. Here, we identify a member of the diverse family of zinc finger associated domain (ZAD)-C₂H₂ zinc finger proteins, Kipferl, as critical Rhino cofactor in ovaries. By binding to guanosine-rich DNA motifs and interacting with the Rhino chromodomain, Kipferl recruits Rhino to specific loci and stabilizes it on chromatin. In kipferl mutant flies, Rhino is lost from most of its target chromatin loci and instead accumulates on pericentromeric Satellite arrays, resulting in decreased levels of transposon targeting piRNAs and impaired fertility. Our findings reveal that DNA sequence, in addition to the H3K9me3 mark, determines the identity of piRNA source loci and provide insight into how Rhino might be caught in the crossfire of genetic conflicts.