Proteins of the highly conserved heterochromatin protein 1 (HP1) family have been found to function in the dynamic organization of nuclear architecture and in gene regulation throughout the eukaryotic kingdom. In addition to being key players in heterochromatin-mediated gene silencing, HP1 proteins may also contribute to the transcriptional repression of euchromatic genes via the recruitment to specific promoters. To investigate the role played by these different activities in specific developmental pathways, we identified HP1 homologues in the genome of Caenorhabditis elegans and used RNA-mediated interference to study their function. We show that one of the homologues, HPL-2, is required for the formation of a functional germline and for the development of the vulva by acting in an Rb-related pathway. We suggest that, by acting as repressors of gene expression, HP1 proteins may fulfil specific functions in both somatic and germline differentiation processes throughout development.