In the metazoan germline, piwi proteins and associated piwi-interacting RNAs 
(piRNAs) provide a defense system against the expression of transposable 
elements. In the cytoplasm, piRNA sequences guide piwi complexes to destroy 
complementary transposon transcripts by endonucleolytic cleavage. However, some 
piwi family members are nuclear, raising the possibility of alternative pathways 
for piRNA-mediated regulation of gene expression. We found that Drosophila Piwi 
is recruited to chromatin, colocalizing with RNA polymerase II (Pol II) on 
polytene chromosomes. Knockdown of Piwi in the germline increases expression of 
transposable elements that are targeted by piRNAs, whereas protein-coding genes 
remain largely unaffected. Derepression of transposons upon Piwi depletion 
correlates with increased occupancy of Pol II on their promoters. Expression of 
piRNAs that target a reporter construct results in a decrease in Pol II 
occupancy and an increase in repressive H3K9me3 marks and heterochromatin 
protein 1 (HP1) on the reporter locus. Our results indicate that Piwi identifies 
targets complementary to the associated piRNA and induces transcriptional 
repression by establishing a repressive chromatin state when correct targets are 
found.