Histone H3 lysine 9 (H3K9) methylation is associated with gene repression and heterochromatin formation. In Drosophila, SU(VAR)3-9 is responsible for H3K9 methylation mainly at pericentric heterochromatin. However, the histone methyltransferases responsible for H3K9 methylation at euchromatic sites, telomeres, and at the peculiar Chromosome 4 have not yet been identified. Here, we show that DmSETDB1 is involved in nonpericentric H3K9 methylation. Analysis of two DmSetdb1 alleles generated by homologous recombination, a deletion, and an allele where the 3HA tag is fused to the endogenous DmSetdb1, reveals that this gene is essential for fly viability and that DmSETDB1 localizes mainly at Chromosome 4. It also shows that DmSETDB1 is responsible for some of the H3K9 mono- and dimethyl marks in euchromatin and for H3K9 dimethylation on Chromosome 4. Moreover, DmSETDB1 is required for variegated repression of transgenes inserted on Chromosome 4. This study defines DmSETDB1 as a H3K9 methyltransferase that specifically targets euchromatin and the autosomal Chromosome 4 and shows that it is an essential factor for Chromosome 4 silencing.