In a broad range of organisms, Piwi-interacting RNAs (piRNAs) have emerged as core components of a surveillance system that protects the genome by silencing transposable and repetitive elements. A vast proportion of piRNAs is produced from discrete genomic loci, termed piRNA clusters, which are generally embedded in heterochromatic regions. The molecular mechanisms and the factors that govern their expression are largely unknown. Here, we show that Cutoff (Cuff), a Drosophila protein related to the yeast transcription termination factor Rai1, is essential for piRNA production in germline tissues. Cuff accumulates at centromeric/pericentromeric positions in germ-cell nuclei and strongly colocalizes with the major heterochromatic domains. Remarkably, we show that Cuff is enriched at the dual-strand piRNA cluster 1/42AB and is likely to be involved in regulation of transcript levels of similar loci dispersed in the genome. Consistent with this observation, Cuff physically interacts with the Heterochromatin Protein 1 (HP1) variant Rhino (Rhi). Our results unveil a link between Cuff activity, heterochromatin assembly and piRNA cluster expression, which is critical for stem-cell and germ-cell development in Drosophila.