Heterochromatin protein 1α (HP1α) is a crucial element of chromatin organization. It has been proposed that HP1α functions through liquid-liquid phase separation (LLPS), which allows it to compact chromatin into transcriptionally repressed heterochromatin regions. In vitro, HP1α can undergo phase separation upon phosphorylation of its N-terminus extension (NTE) and/or through interactions with DNA and chromatin. Here, we combine computational and experimental approaches to elucidate the molecular interactions that drive these processes. In phosphorylation-driven LLPS, HP1α can exchange intradimer hinge-NTE interactions with interdimer contacts, which also leads to a structural change from a compacted to an extended HP1α dimer conformation. This process can be enhanced by the presence of positively charged HP1α peptide ligands and disrupted by the addition of negatively charged or neutral peptides. In DNA-driven LLPS, both positively and negatively charged peptide ligands can perturb phase separation. Our findings demonstrate the importance of electrostatic interactions in HP1α LLPS where binding partners can modulate the overall charge of the droplets and screen or enhance hinge region interactions through specific and non-specific effects. Our study illuminates the complex molecular framework that can fine-tune the properties of HP1α and that can contribute to heterochromatin regulation and function.