Self-renewal and differentiation of stem cells is one of the fundamental biological phenomena relying on proper chromatin organization. In our study, we describe a novel chromatin regulator encoded by the Drosophila small ovary (sov) gene. We demonstrate that sov is required in both the germline stem cells (GSCs) and the surrounding somatic niche cells to ensure GSC survival and differentiation. sov maintains niche integrity and function by repressing transposon mobility, not only in the germline, but also in the soma. Protein interactome analysis of Sov revealed an interaction between Sov and HP1a. In the germ cell nuclei, Sov colocalizes with HP1a, suggesting that Sov affects transposon repression as a component of the heterochromatin. In a position-effect variegation assay, we found a dominant genetic interaction between sov and HP1a, indicating their functional cooperation in promoting the spread of heterochromatin. An in vivo tethering assay and FRAP analysis revealed that Sov enhances heterochromatin formation by supporting the recruitment of HP1a to the chromatin. We propose a model in which sov maintains GSC niche integrity by regulating transposon silencing and heterochromatin formation.