Heterochromatin protein 1 (HP1) is a chromosomal protein that participates in both chromatin packaging and gene silencing. Three HP1 isoforms (alpha, beta, and gamma) occur in mammals, but their functional differences are still incompletely understood. In this study, we found that HP1gamma levels are decreased during adipocyte differentiation, whereas HP1alpha and beta levels are expressed constitutively during adipogenesis in cultured preadipocyte cells. In addition, ectopic overexpression of HP1gamma inhibited adipogenesis. Furthermore, we did not detect any HP1gamma protein in the differentiated cells of various normal human tissues. These results suggest that the loss of HP1gamma is required for cell differentiation to occur. On the other hand, the methylation levels of lysine 20 (K20) on histone H4 showed a significant correlation with HP1gamma expression in both these preadipocyte cells and normal tissue samples. However, all cancer tissues examined were positive for HP1gamma but were often negative for trimethylated histone H4 K20. Thus, a dissociation of the correlation between HP1gamma expression and histone H4 K20 trimethylation may reflect the malfunction of epigenetic control. Finally, suppression of HP1gamma expression restrained cell growth in various cancer-derived cell lines, suggesting that HP1gamma may be an effective target for gene therapy against various human cancers. Taken together, our results demonstrate the novel function of HP1gamma in the epigenetic regulation of both cell differentiation and cancer development.