Heterochromatin is a form of highly compacted chromatin associated with epigenetic gene silencing and chromosome organization. We have previously shown that unphosphorylated nuclear signal transducer and activator of transcription (STAT) physically interacts with heterochromatin protein 1 (HP1) to promote heterochromatin stability. To understand whether STAT and heterochromatin are important for maintenance of genome stability, we genetically manipulated the levels of unphosphorylated STAT and HP1 [encoded by Su(var)205] in Drosophila and examined the effects on chromosomal morphology and resistance to DNA damage under conditions of genotoxic stress. Here we show that, compared with wild-type controls, Drosophila mutants with reduced levels of unphosphorylated STAT or heterochromatin are more sensitive to radiation-induced cell cycle arrest, have higher levels of spontaneous and radiation-induced DNA damage, and exhibit defects in chromosomal compaction and segregation during mitosis. Conversely, animals with increased levels of heterochromatin exhibit less DNA damage and increased survival rate after irradiation. These results suggest that maintaining genome stability by heterochromatin formation and correct chromosomal packaging is essential for normal cellular functions and for survival of animals under genotoxic stress.