Genomes are organized into active regions known as euchromatin and inactive regions known as heterochromatin, or silenced chromatin. This review describes contemporary knowledge and models for how silenced chromatin in Saccharomyces cerevisiae forms, functions, and is inherited. In S. cerevisiae, Sir proteins are the key structural components of silenced chromatin. Sir proteins interact first with silencers, which dictate which regions are silenced, and then with histone tails in nucleosomes as the Sir proteins spread from silencers along chromosomes. Importantly, the spreading of silenced chromatin requires the histone deacetylase activity of Sir2p. This requirement leads to a general model for the spreading and inheritance of silenced chromatin or other special chromatin states. Such chromatin domains are marked by modifications of the nucleosomes or DNA, and this mark is able to recruit an enzyme that makes further marks. Thus, among different organisms, multiple forms of repressive chromatin can be formed using similar strategies but completely different proteins. We also describe emerging evidence that mutations that cause global changes in the modification of histones can alter the balance between euchromatin and silenced chromatin within a cell.