We have identified a novel gene named grappa (gpp) that is the Drosophila ortholog of the Saccharomyces cerevisiae gene Dot1, a histone methyltransferase that modifies the lysine (K)79 residue of histone H3. gpp is an essential gene identified in a genetic screen for dominant suppressors of pairing-dependent silencing, a Polycomb-group (Pc-G)-mediated silencing mechanism necessary for the maintenance phase of Bithorax complex (BX-C) expression. Surprisingly, gpp mutants not only exhibit Pc-G phenotypes, but also display phenotypes characteristic of trithorax-group mutants. Mutations in gpp also disrupt telomeric silencing but do not affect centric heterochromatin. These apparent contradictory phenotypes may result from loss of gpp activity in mutants at sites of both active and inactive chromatin domains. Unlike the early histone H3 K4 and K9 methylation patterns, the appearance of methylated K79 during embryogenesis coincides with the maintenance phase of BX-C expression, suggesting that there is a unique role for this chromatin modification in development.