The JAK/STAT pathway has pleiotropic roles in animal development, and its aberrant activation is implicated in multiple human cancers. JAK/STAT signaling effects have been attributed largely to direct transcriptional regulation by STAT of specific target genes that promote tumor cell proliferation or survival. We show here in a Drosophila melanogaster hematopoietic tumor model, however, that JAK overactivation globally disrupts heterochromatic gene silencing, an epigenetic tumor suppressive mechanism. This disruption allows derepression of genes that are not direct targets of STAT, as evidenced by suppression of heterochromatin-mediated position effect variegation. Moreover, mutations in the genes encoding heterochromatin components heterochromatin protein 1 (HP1) and Su(var)3-9 enhance tumorigenesis induced by an oncogenic JAK kinase without affecting JAK/STAT signaling. Consistently, JAK loss of function enhances heterochromatic gene silencing, whereas overexpressing HP1 suppresses oncogenic JAK-induced tumors. These results demonstrate that the JAK/STAT pathway regulates cellular epigenetic status and that globally disrupting heterochromatin-mediated tumor suppression is essential for tumorigenesis induced by JAK overactivation.