Heterochromatin protein 1 (HP1) is a nonhistone chromosomal protein primarily associated with the pericentric heterochromatin and telomeres in Drosophila. The molecular mechanism by which HP1 specifically recognizes and binds to chromatin is unknown. The purpose of this study was to test whether HP1 can bind directly to nucleosomes. HP1 binds nucleosome core particles and naked DNA. HP1-DNA complex formation is length-dependent and cooperative but relatively sequence-independent. We show that histone H4 amino-terminal peptides bind to monomeric and dimeric HP1 in vitro. Acetylation of lysine residues had no significant effect on in vitro binding. The C-terminal chromo shadow domain of HP1 specifically binds H4 N-terminal peptide. Neither the chromo domain nor chromo shadow domain alone binds DNA; intact native HP1 is required for such interactions. Together, these observations suggest that HP1 may serve as a cross-linker in chromatin, linking nucleosomal DNA and nonhistone protein complexes to form higher order chromatin structures.