Both RNAi-dependent and -independent mechanisms have been implicated in the establishment of heterochromatin domains, which may be stabilized by feedback loops involving chromatin proteins and modifications of histones and DNA. Neurospora crassa sports features of heterochromatin found in higher eukaryotes, namely cytosine methylation (5mC), methylation of histone H3 lysine 9 (H3K9me), and heterochromatin protein 1 (HP1), and is a model to investigate heterochromatin establishment and maintenance. We mapped the distribution of HP1, 5mC, H3K9me3, and H3K4me2 at 100 bp resolution and explored their interplay. HP1, H3K9me3, and 5mC were extensively co-localized and defined 44 heterochromatic domains on linkage group VII, all relics of repeat-induced point mutation. Interestingly, the centromere was found in an approximately 350 kb heterochromatic domain with no detectable H3K4me2. 5mC was not found in genes, in contrast to the situation in plants and animals. H3K9me3 is required for HP1 localization and DNA methylation in N. crassa. In contrast, we found that localization of H3K9me3 was independent of 5mC or HP1 at virtually all heterochromatin regions. In addition, we observed complete restoration of DNA methylation patterns after depletion and reintroduction of the H3K9 methylation machinery. These data show that A:T-rich RIP'd DNA efficiently directs methylation of H3K9, which in turn, directs methylation of associated cytosines.