Piwi-interacting RNAs (piRNAs) silence transposons and maintain genome integrity during germline development. In Drosophila, transposon-rich heterochromatic clusters encode piRNAs either on both genomic strands (dual-strand clusters) or predominantly one genomic strand (uni-strand clusters). Primary piRNAs derived from these clusters are proposed to drive a ping-pong amplification cycle catalyzed by proteins that localize to the perinuclear nuage. We show that the HP1 homolog Rhino is required for nuage organization, transposon silencing, and ping-pong amplification of piRNAs. rhi mutations virtually eliminate piRNAs from the dual-strand clusters and block production of putative precursor RNAs from both strands of the major 42AB dual-strand cluster, but not of transcripts or piRNAs from the uni-strand clusters. Furthermore, Rhino protein associates with the 42AB dual-strand cluster,but does not bind to uni-strand cluster 2 or flamenco. Rhino thus appears to promote transcription of dual-strand clusters, leading to production of piRNAs that drive the ping-pong amplification cycle.