Set1p methylates lysine 4 of histone H3 and can activate transcription by recruiting the chromatin-remodeling factor Isw1p. In addition, Lys-4-methylated H3 is required for maintenance of silencing at the telomeres, rDNA, and HML locus in Saccharomyces cerevisiae. The molecular mechanism underlying the role of Set1p in silencing is not known. Here we report that euchromatic methylation of H3 Lys-4 is necessary to maintain silencing at specific heterochromatic sites. Inactivation of Set1p catalytic activity or mutation of H3 Lys-4 leads to decreased binding of the silent information regulator Sir3p at heterochromatic sites. Concomitantly, there is an increase in the amount of Sir3p bound to genes located in subtelomeric regions. Consistent with this result is the finding that in vitro, Sir3p preferentially binds histone H3 tails when methylation is absent at H3 Lys-4, a situation found in heterochromatin. The inability of Sir3p to bind methylated H3 Lys-4 tails suggests a model whereby H3 Lys-4 methylation prevents Sir3p association at euchromatic sites and therefore concentrates Sir3p at unmodified, heterochromatic regions of the genome.