The DNA in eukaryotes is arranged in fibres of chromatin. The chromatin may be more or less compacted and the degree of condensation of the chromatin affects the accessibility of the DNA. The accessibility of the DNA, in turn, affects transcription and gene regulation. Genes within inaccessible DNA are commonly repressed whereasgenes within accessible DNA are active and expressed. This thesis concerns the interplay between chromatin and transcription with focus on the function of the RNA polymerase II (pol II) subunit Rpb7. We have demonstrated that processing of centromeric transcripts by the ribonuclease III family protein Dcr1 is required for heterochromatin formation at the centromeres of Schizosaccharomyces pombe. A point mutation in the pol II subunit Rpb7 caused a specific defect in centromeric heterochromatin formation. We have shown i) that the centromeric transcripts that accumulate in dcr1delta cells are products of pol II, ii) the rpbG150D mutation is deficient in recognition and/or initiation of transcription from the centromeric promoter. Transcription by pol II within the centromeres was surprising since insertion of marker genes within these loci normally results in repression of pol II transcription. Here, paradoxically, pol II transcription was required for the construction of the inaccessible heterochromatin structure. Our analysis of sRNA in S. pombe revealed that most centromeric siRNA are originating from two clusters, which are repeated several times within the centromeres. This lead us to propose a model in which centromeric transcripts fold into double stranded structures that are processed by Dcr1. The resulting siRNAs may contribute with the starting signal for the RNAi feedback loop required for heterochromatin formation at the centromeres. Finally, we demonstrate that the genome-wide association of Rpb7 is nearly identical to that of the core pol II subunit Rpb2, indicating a general role for Rpb7 in transcription. We further show that the occupancy pattern of Rpb4, a pol II subunit that forms a subcomplex together with Rpb7, differs from those of Rpb2 and Rpb7. Rpb4 may therefore have a less general function in transcription than Rpb7. Hence, transcription by pol II is required not only for gene expression but also for repression via formation of inaccessible heterochromatin.