Characterizing how genomic sequence interacts with trans-acting regulatory factors to implement a program of gene expression in eukaryotic organisms is critical to understanding genome function. One means by which patterns of gene expression are achieved is through the differential packaging of DNA into distinct types of chromatin. While chromatin state exerts a major influence on gene expression, the extent to which cis-acting DNA sequences contribute to the specification of chromatin state remains incompletely understood. To address this, we have used a fission yeast sequence element (L5), known to be sufficient to nucleate heterochromatin, to establish de novo heterochromatin domains in the Schizosaccharomyces pombe genome. The resulting heterochromatin domains were queried for the presence of H3K9 di-methylation and Swi6p, both hallmarks of heterochromatin, and for levels of gene expression. We describe a major effect of genomic sequences in determining the size and extent of such de novo heterochromatin domains. Heterochromatin spreading is antagonized by the presence of genes, in a manner that can occur independent of strength of transcription. Increasing the dosage of Swi6p results in increased heterochromatin proximal to the L5 element, but does not result in an expansion of the heterochromatin domain, suggesting that in this context genomic effects are dominant over trans effects. Finally, we show that the ratio of Swi6p to H3K9 di-methylation is sequence-dependent and correlates with the extent of gene repression. Taken together, these data demonstrate that the sequence content of a genomic region plays a significant role in shaping its response to encroaching heterochromatin and suggest a role of DNA sequence in specifying chromatin state.