piRNAs guide an adaptive genome defense system that silences transposons during germline development. The Drosophila HP1 homolog Rhino is required for germline piRNA production. We show that Rhino binds specifically to the heterochromatic clusters that produce piRNA precursors, and that binding directly correlates with piRNA production. Rhino colocalizes to germline nuclear foci with Rai1/DXO-related protein Cuff and the DEAD box protein UAP56, which are also required for germline piRNA production. RNA sequencing indicates that most cluster transcripts are not spliced and that rhino, cuff, and uap56 mutations increase expression of spliced cluster transcripts over 100-fold. LacI::Rhino fusion protein binding suppresses splicing of a reporter transgene and is sufficient to trigger piRNA production from a trans combination of sense and antisense reporters. We therefore propose that Rhino anchors a nuclear complex that suppresses cluster transcript splicing and speculate that stalled splicing differentiates piRNA precursors from mRNAs.