RNA interference (RNAi) is a conserved silencing mechanism that can act through alteration of chromatin structure. Chromatin insulators promote higher-order nuclear organization, thereby establishing DNA domains subject to distinct transcriptional controls. We present evidence for a functional relationship between RNAi and the gypsy insulator of D. melanogaster. Insulator activity is decreased when Argonaute genes required for RNAi are mutated, and insulator function is improved when the levels of the Rm62 helicase, involved in double-stranded RNA (dsRNA)-mediated silencing and heterochromatin formation, are reduced. Rm62 interacts physically with the DNA-binding insulator protein CP190 in an RNA-dependent manner. Finally, reduction of Rm62 levels results in marked nuclear reorganization of a compromised insulator. These results suggest that the RNAi machinery acts as a modulator of nuclear architecture capable of effecting global changes in gene expression.