Heterochromatin formation plays an important role in gene regulation and the maintenance of genome integrity. Here we present results from a study of the D. melanogaster gene vig, encoding an RNAi complex component and its homolog vig2 (CG11844) that support their involvement in heterochromatin formation and/or maintenance. Protein null mutations vig(EP812) and vig2(PL470) act as modifiers of Position Effect Variegation (PEV). VIG and Vig2 are present in polytene chromosomes and partially overlap with HP1. Quantitative immunoblots show depletion of HP1 and HP2 (large isoform) in isolated nuclei from the vig(EP812) mutant. The vig2(PL470) mutant strain demonstrates a decreased level of H3K9me2. Pull-down experiments using antibodies specific to HP1 recovered both VIG and Vig2. The association between HP1 and both VIG and Vig2 proteins depends on an RNA component. The above data and the developmental profiles of the two genes suggest that Vig2 may be involved in heterochromatin targeting and establishment early in development, while VIG may have a role in stabilizing HP1/HP2 chromatin binding during later stages.