Nucleoli are prominent nuclear structures assembled and organized around actively transcribed ribosomal DNA (rDNA). The nucleolus has emerged as a platform for the organization of chromatin enriched for repressive histone modifications associated with repetitive DNA. NPM1 is a nucleolar protein required for maintenance of genome stability. However, the role of NPM1 in nucleolar chromatin dynamics and ribosome biogenesis remains unclear. We found that normal fibroblasts and cancer cells depleted of NPM1 displayed deformed nucleoli and a striking rearrangement of perinucleolar heterochromatin as was identified by immunofluorescence staining of tri-methylated H3K9, tri-methylated H3K27 and heterochromatin protein 1γ (HP1γ/CBX3). By co-immunoprecipitation we found that NPM1 associated with HP1γ, core and linker histones. Moreover, NPM1 was required for efficient tethering of HP1γ enriched chromatin to the nucleolus. We next tested whether the alterations in perinucleolar heterochromatin architecture correlated with a difference in regulation of rDNA. U1242MG glioma cells depleted of NPM1 presented with altered silver staining of nucleolar organizer regions, coupled to a modest decrease in H3K9 di- and tri-methylation at the rDNA promoter. rDNA transcription and cell proliferation were sustained in these cells indicating that altered organization of heterochromatin was not secondary to inhibition of rDNA transcription. Furthermore, knockdown of DNA methyltransferase DNMT3A markedly enhanced rDNA transcription in NPM1 depleted U1242MG cells. In summary, this study highlights a function of NPM1 in the spatial organization of nucleolus associated heterochromatin.