Hydroxyurea, a well-known DNA replication inhibitor, induces cell cycle arrest and intact checkpoint functions are required to survive DNA replication stress induced by this genotoxic agent. Perturbed DNA synthesis also results in elevated levels of DNA damage. It is unclear how organisms prevent accumulation of this type of DNA damage that coincides with hampered DNA synthesis. Here, we report the identification of stonewall (stwl) as a novel hydroxyurea-hypersensitive mutant. We demonstrate that Stwl is required to prevent accumulation of DNA damage induced by hydroxyurea; yet, Stwl is not involved in S/M checkpoint regulation. We show that Stwl is a heterochromatin-associated protein with transcription-repressing capacities. In stwl mutants, levels of trimethylated H3K27 and H3K9 (two hallmarks of silent chromatin) are decreased. Our data provide evidence for a Stwl-dependent epigenetic mechanism that is involved in the maintenance of the normal balance between euchromatin and heterochromatin and that is required to prevent accumulation of DNA damage in the presence of DNA replication stress.