Heterochromatin plays important roles in eukaryotic genome regulation. However, the repressive nature of heterochromatin combined with its propensity to self-propagate necessitates robust mechanisms to contain heterochromatin within defined boundaries and thus prevent silencing of expressed genes. Here we show that loss of the PAF complex (PAFc) component Leo1 compromises chromatin boundaries, resulting in invasion of heterochromatin into flanking euchromatin domains. Similar effects are seen upon deletion of other PAFc components, but not other factors with related functions in transcription-associated chromatin modification, indicating a specific role for PAFc in heterochromatin regulation. Loss of Leo1 results in reduced levels of H4K16 acetylation at boundary regions, while tethering of the H4K16 acetyltransferase Mst1 to boundary chromatin suppresses heterochromatin spreading in leo1Δ cells, suggesting that Leo1 antagonises heterochromatin spreading by promoting H4K16 acetylation. Our findings reveal a previously undescribed role for PAFc in regulating global heterochromatin distribution.