Histones of heterochromatin are deacetylated in yeast and methylated in more complex eukaryotes to regulate heterochromatin structure and gene silencing. Here, we report that histone H2A phosphorylated at serine 129 (γH2A) in Saccharomyces cerevisiae is a conceptually new type of heterochromatin modification that functions downstream of silent chromatin assembly. We show that γH2A is enriched throughout yeast telomeric and silent mating locus (HM) heterochromatin where γH2A results from the action of kinases Tel1 and Mec1. Interestingly, mutation of γH2A has no apparent effect on the binding of Sir (silent information regulator) complex or on gene silencing. In contrast, deletion of SIR3 abolishes the formation of γH2A at heterochromatin. To address the function of γH2A, we used a Δrif1 mutant strain in which telomeres are excessively elongated to show that γH2A is required for the optimal recruitment of Cdc13, a regulator of telomere elongation, and for telomere elongation itself. Thus, a histone modification that parallels Sir3 protein binding is shown here to be dispensable for the formation of a silent structure but is important for a crucial heterochromatin-specific downstream function in telomere homeostasis.