The eukaryotic genome is packaged into distinct domains of transcriptionally active euchromatin and silent heterochromatin. A hallmark of mammalian heterochromatin is CpG methylation. Lsh, a member of the SNF2 family, is a major regulator of DNA methylation in mice and thus crucial for normal heterochromatin formation. In order to define the molecular function of Lsh, we examined its cellular localization and its association with chromatin. Our studies demonstrate that Lsh is an exclusively nuclear protein, and we define a nuclear localization domain within the N-terminal portion of Lsh. Lsh strongly associates with chromatin and requires the internal and C-terminal regions for this interaction. Lsh accumulates at pericentromeric heterochromatin, suggesting a direct role for Lsh in the methylation of centromeric DNA sequences and the formation of heterochromatin. In search of a signal that is responsible for Lsh recruitment to pericentromeric heterochromatin, we found that histone tail modifications were critical. Prolonged treatment with histone deacetylase inhibitors has been reported to disrupt higher-order heterochromatin organization, and this was accompanied by dissociation of Lsh from pericentromeric heterochromatin. These results are consistent with a model in which Lsh is recruited by intact heterochromatin structure and then assists in maintaining heterochromatin organization by establishing CpG methylation patterns.