The silent mating loci and chromosomal regions adjacent to telomeres of S. cerevisiae have features similar to heterochromatin of more complex eukaryotes. Transcriptional repression at these sites depends on the silent information regulators SIR3 and SIR4 as well as histones H3 and H4. We show here that the SIR3 and SIR4 proteins interact with specific silencing domains of the H3 and H4 N-termini in vitro. Certain mutations in these factors, which affect their silencing functions in vivo, also disrupt their interactions in vitro. Immunofluorescence studies with antibodies against RAP1 and SIR3 demonstrate that the H3 and H4 N-termini are required for the association of SIR3 with telomeric chromatin and the perinuclear positioning of yeast telomeres. Based on these interactions, we propose a model for heterochromatin-mediated transcriptional silencing in yeast, which may serve as a paradigm for other eukaryotic organisms as well.