The origin recognition complex (ORC) is required to initiate eukaryotic DNA replication and also engages in transcriptional silencing in S. cerevisiae. We observed a striking preferential but not exclusive association of Drosophila ORC2 with heterochromatin on interphase and mitotic chromosomes. HP1, a heterochromatin-localized protein required for position effect variegation (PEV), colocalized with DmORC2 at these sites. Consistent with this localization, intact DmORC and HP1 were found in physical complex. The association was shown biochemically to require the chromodomain and shadow domains of HP1. The amino terminus of DmORC1 contained a strong HP1-binding site, mirroring an interaction found independently in Xenopus by a yeast two-hybrid screen. Finally, heterozygous DmORC2 recessive lethal mutations resulted in a suppression of PEV. These results indicate that ORC may play a widespread role in packaging chromosomal domains through interactions with heterochromatin-organizing factors.