Poly(ADP-ribose) polymerase (PARP) is a major NAD-dependent modifying enzyme that mediates important steps in DNA repair, transcription, and apoptosis, but its role during development is poorly understood. We found that a single Drosophila Parp gene spans more than 150 kb of transposon-rich centromeric heterochromatin and produces several differentially spliced transcripts, including a novel isoform, PARP-e, predicted to encode a protein lacking enzymatic activity. An insertion mutation near the upstream promoter for Parp-e disrupts all Parp expression. Heterochromatic but not euchromatic sequences become hypersensitive to micrococcal nuclease, nucleoli fail to form, and transcript levels of the copia retrotransposon are elevated more than 50-fold; the variegated expression of certain transgenes is dominantly enhanced. Larval lethality can be rescued and PARP activity restored by expressing a cDNA encoding PARP-e. We propose that PARP-e autoregulates Parp transcription by influencing the chromatin structure of its heterochromatic environment. Our results indicate that Parp plays a fundamental role organizing the structure of Drosophila chromatin.