The 35S ribosomal RNA genes (rDNA) are organized as repeated arrays in many organisms. Epigenetic regulation of transcription of the rRNA results in only a subset of copies being transcribed, making rDNA an important model for understanding epigenetic chromatin modification. We have created an allelic series of deletions within the rDNA array of the Drosophila Y chromosome that affect nucleolus size and morphology, but do not limit steady-state rRNA concentrations. These rDNA deletions result in reduced heterochromatin-induced gene silencing elsewhere in the genome, and the extent of the rDNA deletion correlates with the loss of silencing. Consistent with this, chromosomes isolated from strains mutated in genes required for proper heterochromatin formation have very small rDNA arrays, reinforcing the connection between heterochromatin and the rDNA. In wild-type cells, which undergo spontaneous natural rDNA loss, we observed the same correlation between loss of rDNA and loss of heterochromatin-induced silencing, showing that the volatility of rDNA arrays may epigenetically influence gene expression through normal development and differentiation. We propose that the rDNA contributes to a balance between heterochromatin and euchromatin in the nucleus, and alterations in rDNA--induced or natural--affect this balance.