Heterochromatin is most often associated with eukaryotic organisms. Yet, bacteria also contain areas with densely protein-occupied chromatin that appear to silence gene expression. One nucleoid-associated silencing factor is the conserved protein Hfq. Although seemingly nonspecific in its DNA binding properties, Hfq is strongly enriched at AT-rich DNA regions, characteristic of prophages and mobile genetic elements. Here, we demonstrate that polyphosphate (polyP), an ancient and highly conserved polyanion, is essential for the site-specific DNA binding properties of Hfq in bacteria. Absence of polyP markedly alters the DNA binding profile of Hfq, causes unsolicited prophage and transposon mobilization, and increases mutagenesis rates and DNA damage–induced cell death. In vitro reconstitution of the system revealed that Hfq and polyP interact with AT-rich DNA sequences and form phase-separated condensates, a process that is mediated by the intrinsically disordered C-terminal extensions of Hfq. We propose that polyP serves as a newly identified driver of heterochromatin formation in bacteria.