Malaria parasites use antigenic variation to avoid immune clearance and increase the duration of infection in the human host. Variation at the surface of P. falciparum-infected erythrocytes is mediated by the differential control of a family of surface antigens encoded by var genes. Switching of var gene expression occurs in situ, mostly from telomere-associated loci, without detectable DNA alterations, suggesting that it is controlled by chromatin structure. We have identified chromatin modifications at telomeres that spread far into telomere-proximal regions, including var gene loci (>50 kb). One type of modification is mediated by a protein homologous to yeast Sir2 called PfSir2, which forms a chromosomal gradient of heterochromatin structure and histone hypoacetylation. Upon activation of a specific telomere-associated var gene, PfSir2 is removed from the promoter region and acetylation of histone occurs. Our data demonstrate that mutually exclusive transcription of var genes is linked to the dynamic remodeling of chromatin.