Eukaryotic DNA is organized into structurally distinct domains that regulate gene expression and chromosome behavior. Epigenetically heritable domains of heterochromatin control the structure and expression of large chromosome domains and are required for proper chromosome segregation. Recent studies have identified many of the enzymes and structural proteins that work together to assemble heterochromatin. The assembly process appears to occur in a stepwise manner involving sequential rounds of histone modification by silencing complexes that spread along the chromatin fiber by self-oligomerization, as well as by association with specifically modified histone amino-terminal tails. Finally, an unexpected role for noncoding RNAs and RNA interference in the formation of epigenetic chromatin domains has been uncovered.