RNA interference (RNAi) is a conserved silencing mechanism whereby double-strand RNA induces specific down-regulation of homologous sequences. In the fission yeast Schizosaccharomyces pombe, centromeric heterochromatin assembly is an RNAi-dependent process. Noncoding RNAs transcribed from pericentromeric repeat sequences are processed into short interfering RNAs (siRNAs) that direct the Argonaute-containing RNA-induced transcriptional silencing (RITS) effector complex to homologous nascent transcripts. RITS is required for H3K9 methylation by the histone methyltransferase (HMT) Clr4; conversely, H3K9 methylation can attract RITS to chromatin via binding of the chromodomain protein Chp1. This codependency has hampered dissection of the order of events and mechanisms of cross talk between the RNAi and chromatin modification machineries. To tackle this problem, we have developed systems that reconstitute heterochromatin at a euchromatic locus, using either hairpin triggers or DNA-tethered chromatin-modifying complexes. These systems reveal that RNAi is sufficient to promote heterochromatin assembly in cis and that direct recruitment of the HMT Clr4 can bypass the role of RNAi in heterochromatin assembly. We have also characterized a new pathway component, Stc1, that translates the RNAi signal into chromatin marks. We discuss the implications of these findings for our understanding of the mechanism and function of RNAi-directed heterochromatin assembly at centromeres. © 2010 Cold Spring Harbor Laboratory Press.