The Drosophila melanogaster Piwi protein regulates both niche and intrinsic mechanisms to maintain germline stem cells, but its underlying mechanism remains unclear. Here we report that Piwi interacts with Polycomb group complexes PRC1 and PRC2 in niche and germline cells to regulate ovarian germline stem cells and oogenesis. Piwi physically interacts with the PRC2 subunits Su(z)12 and Esc in the ovary and in vitro. Chromatin coimmunoprecipitation of Piwi, the PRC2 enzymatic subunit E(z), histone H3 trimethylated at lysine 27 (H3K27me3) and RNA polymerase II in wild-type and piwi mutant ovaries demonstrates that Piwi binds a conserved DNA motif at ∼72 genomic sites and inhibits PRC2 binding to many non-Piwi-binding genomic targets and H3K27 trimethylation. Moreover, Piwi influences RNA polymerase II activities in Drosophila ovaries, likely via inhibiting PRC2. We hypothesize that Piwi negatively regulates PRC2 binding by sequestering PRC2 in the nucleoplasm, thus reducing PRC2 binding to many targets and influencing transcription during oogenesis.