Heterochromatin is important for gene regulation and chromosome structure, but the genes that are occupied by heterochromatin proteins in the mammalian genome are largely unknown. We have adapted the DamID method to systematically identify target genes of the heterochromatin proteins HP1 and SUV39H1 in human and mouse cells. Unexpectedly, we found that CBX1 (formerly HP1beta) and SUV39H1 bind to genes encoding KRAB domain containing zinc finger (KRAB-ZNF) transcriptional repressors. These genes constitute one of the largest gene families and are organized in clusters in the human genome. Preference of CBX1 for this gene family was observed in both human and mouse cells. High-resolution mapping on human chromosome 19 revealed that CBX1 coats large domains 0.1-4 Mb in size, which coincide with the position of KRAB-ZNF gene clusters. These domains show an intricate CBX1 binding pattern: While CBX1 is globally elevated throughout the domains, it is absent from the promoters and binds more strongly to the 3' ends of KRAB-ZNF genes. KRAB-ZNF domains contain large numbers of LINE elements, which may contribute to CBX1 recruitment. These results uncover a surprising link between heterochromatin and a large family of regulatory genes in mammals. We suggest a role for heterochromatin in the evolution of the KRAB-ZNF gene family.