Gene silencing involves the assembly of DNA into specialized chromatin domains that are inaccessible to trans-acting factors and are epigenetically inherited. In the budding yeast Saccharomyces cerevisiae, silent heterochromatic DNA domains occur at telomeres, the silent mating type loci, and the rDNA repeats. At telomeres and the mating type loci, silencing requires the Sir2, Sir3 and Sir4 proteins, the conserved N-termini of histones H3 and H4, and a number of chromatin assembly factors. The Sir proteins form a multimeric complex that binds preferentially to deacetylated nucleosomes through the Sir3 and Sir4 subunits. The Sir2 subunit possesses an unusual NAD-dependent deacetylase activity that is required for silencing at each of the above loci. Recent studies have shown that silent chromatin domains are assembled in a step-wise manner involving sequential cycles of deacetylation and SIR complex binding. Sir2-dependent deacetylation is specifically required for the spreading of the complex to regions beyond nucleation sites but not for its initial binding to DNA at the mating type loci and telomeres. A distinct Sir2 complex called RENT is required for silencing at rDNA. In contrast to telomeres and the mating type loci, Sir2 activity is not required for association of RENT with rDNA.