The chromosomes of eukaryotes are organized into structurally and functionally discrete domains. This implies the presence of insulator elements that separate adjacent domains, allowing them to maintain different chromatin structures. We show that the Fun30 chromatin remodeler, Fft3, is essential for maintaining a proper chromatin structure at centromeres and subtelomeres. Fft3 is localized to insulator elements and inhibits euchromatin assembly in silent chromatin domains. In its absence, euchromatic histone modifications and histone variants invade centromeres and subtelomeres, causing a mis-regulation of gene expression and severe chromosome segregation defects. Our data strongly suggest that Fft3 controls the identity of chromatin domains by protecting these regions from euchromatin assembly.