An increase in the dose of the heterochromatin-associated Su(var)3-7 protein of Drosophila augments the genomic silencing of position-effect variegation. We have expressed a number of fragments of the protein in flies to assign functions to the different domains. Specific binding to pericentric heterochromatin depends on the C-terminal half of the protein. The N terminus, containing six of the seven widely spaced zinc fingers, is required for binding to bands on euchromatic arms, with no preference for pericentric heterochromatin. In contrast to the enhancing properties of the full-length protein, the N terminus half has no effect on heterochromatin-dependent position-effect variegation. In contrast, the C terminus moiety suppresses variegation. This dominant negative effect on variegation could result from association of the fragment with the wild type endogenous protein. Indeed, we have found and mapped a domain of self-association in this C-terminal half. Furthermore, a small fragment of the C-terminal region actually depletes pericentric heterochromatin from endogenous Su(var)3-7 and has a very strong suppressor effect. This depletion is not followed by a depletion of HP1, a companion of Su(var)3-7. This indicates that Su(var)3-7 does not recruit HP1 to heterochromatin. We propose in conclusion that the association of Su(var)3-7 to heterochromatin depends on protein-protein interaction mediated by the C-terminal half of the sequence, while the silencing function requires also the N-terminal half containing the zinc fingers.