Iron metabolism is critical for sustaining life and maintaining human health. Here, we find that iron homeostasis is linked to facultative heterochromatin assembly and regulation of gene expression during adaptive genome control. We show that the fission yeast Clr4/Suv39h histone methyltransferase is part of a rheostat-like mechanism in which transcriptional upregulation of mRNAs in response to environmental change provides feedback to prevent their uncontrolled expression through heterochromatin assembly. Interestingly, proper iron homeostasis is required, as iron depletion or downregulation of iron transporters causes defects in heterochromatin assembly and unrestrained upregulation of gene expression. Remarkably, an unbiased genetic screen revealed that restoration of iron homeostasis is sufficient to re-establish facultative heterochromatin and proper gene control genome-wide. These results establish a role for iron homeostasis in facultative heterochromatin assembly and reveal a dynamic mechanism for reprogramming the genome in response to environmental changes.