RNApolII-dependent transcription is repressed in primordial germ cells of many animals during early development and is thought to be important for maintenance of germline fate by preventing somatic differentiation. Germ cell transcriptional repression occurs concurrently with inhibition of phosphorylation in the carboxy-terminal domain (CTD) of RNApolII, as well as with chromatin remodeling. The precise mechanisms involved are unknown. Here, we present evidence that a noncoding RNA transcribed by the gene polar granule component (pgc) regulates transcriptional repression in Drosophila germ cells. Germ cells lacking pgc RNA express genes important for differentiation of nearby somatic cells and show premature phosphorylation of RNApolII. We further show that germ cells lacking pgc show increased levels of K4, but not K9 histone H3 methylation, and that the chromatin remodeling Swi/Snf complex is required for a second stage in germ cell transcriptional repression. We propose that a noncoding RNA controls transcription in early germ cells by blocking the transition from preinitiation to transcriptional elongation. We further show that repression of somatic differentiation signals mediated by the Torso receptor-tyrosine kinase is important for germline development.