Сhromatin is critical for genome compaction and gene expression. On a coarse scale, the genome is divided into euchromatin, which harbors the majority of genes and is enriched in active chromatin marks, and heterochromatin, which is gene-poor but repeat-rich. The conserved molecular hallmark of heterochromatin is the H3K9me3 modification, which is associated with gene silencing. We found that in Drosophila, deposition of most of the H3K9me3 mark depends on SUMO and the SUMO ligase Su(var)2-10, which recruits the histone methyltransferase complex SetDB1/Wde. In addition to repressing repeats, H3K9me3 influences expression of both hetero- and euchromatic host genes. High H3K9me3 levels in heterochromatin are required to suppress spurious transcription and ensure proper gene expression. In euchromatin, a set of conserved genes is repressed by Su(var)2-10/SetDB1-induced H3K9 trimethylation, ensuring tissue-specific gene expression. Several components of heterochromatin are themselves repressed by this pathway, providing a negative feedback mechanism to ensure chromatin homeostasis.