Abstract The eukaryotic genome is organized into two distinct forms of chromatin, euchromatin and heterochromatin. The entire Drosophila chromosome 4, unlike other autosomes, is almost heterochromatin characterized by methylation of histone 3 at lysine 9 (H3K9me) and the association of heterochromatin protein 1 (HP1) as well as high density of transposable elements (TEs) embedded (Riddle and Elgin 2006). But the 4th chromosome possesses the same density of genes as euchromatin and these genes are actively transcribed during different developmental stages even in the heterochromatic environment (Riddle et al. 2011). However, the regulation mechanism of chromosome 4 genes and TEs is still unclear. This thesis includes two parts. In the first part, we generate null allele of the histone methyltransferase (HMT) dSETDB1, and show that loss of dSETDB1, results in the reduction of H3K9me and HP1-binding on the 4th chromosome. In addition, the binding of POF, a known fourth chromosome-specific protein, and the dSETDB1-controlled H3K9 methylation of this chromosome are interdependent. In the second part, we provide the detail analysis of dSETDB1 null mutant phenotype at high resolution by combining immunostaining images and ChIP-chip analysis data, showing residual H3K9 dimethylation (H3K9me2) and residual binding of HP1 and POF on chromosome 4 in dSETDB1 mutants. The residual H3K9me2 in dSETDB1 mutants depends on SU(VAR)3-9, uncovering the role of SU(VAR)3-9 on chromosome 4. In addition, the distribution of SU(VAR)3-9 along chromosome 4 is dSETDB1-dependent. The major composition of the residual binding regions (RBRs) is transposable elements (TEs) and their expression is derepressed in dSETDB1 mutants. Finally, to determine the effect of dSETDB1 on chromosome 4 gene expression via regulation of HP1-binding, the HP1-binding profiles across chromosome 4 genes were analyzed and the results show that HP1-binding to transcribed gene bodies decrease in dSETDB1 mutants, resulting in down-regulation of gene expression. These results suggest that dSETDB1 enhances transcription by facilitating association of HP1 with transcribed gene bodies. Overall, these observations provide insight into the role of dSETDB1 in regulating chromosome 4 genes and TEs expression.