The repression of transposable elements in eukaryotes often involves their transcriptional silencing via targeted chromatin modifications. In animal gonads, nuclear Argonaute proteins of the PIWI clade complexed with small guide RNAs (piRNAs) serve as sequence specificity determinants in this process. How binding of nuclear PIWI-piRNA complexes to nascent transcripts orchestrates heterochromatin formation and transcriptional silencing is unknown. Here, we characterize CG9754/Silencio as an essential piRNA pathway factor that is required for Piwi-mediated transcriptional silencing in Drosophila. Ectopic targeting of Silencio to RNA or DNA is sufficient to elicit silencing independently of Piwi and known piRNA pathway factors. Instead, Silencio requires the H3K9 methyltransferase Eggless/SetDB1 for its silencing ability. In agreement with this, SetDB1, but not Su(var)3-9, is required for Piwi-mediated transcriptional silencing genome-wide. Due to its interaction with the target-engaged Piwi-piRNA complex, we suggest that Silencio acts as linker between the sequence specificity factor Piwi and the cellular heterochromatin machinery.