Chromatin modifiers impose regulatory controls over diverse chromosomal processes including transcription, nuclear organization, and genome stability. Here we reveal an unexpected role for the histone methyltransferase Set1 (KMT2) as a general transcriptional repressor of the fission yeast Schizosaccharomyces pombe genome. Set1 localizes to repetitive elements and represses both forward and reverse transcripts associated with centromeric and subtelomeric heterochromatin and Tf2 long terminal repeats (LTRs) retrotransposons distinct from its H3K4 methylation (H3K4me) activity. Set1 cooperates with Abp1, the S. pombe homolog of the mammalian centromere binding protein B (CENP-B), to mediate its repression of Tf2s. Intriguingly, Set1 helps organize dispersed Tf2s into distinct nuclear foci termed Tf bodies, the integrity of which requires class I/II histone deacetylases (HDACs) and Sirtuin. Our study uncovers dual roles for Set1 in the maintenance of euchromatin and heterochromatin, and its cooperation with a functional transposase-containing transcription factor to mediate repression and genome organization of dispersed retrotransposons.