The nuclear PA28γ is known to activate the 20S proteasome, but its precise cellular functions remains unclear. Here, we identify PA28γ as a key factor that structures heterochromatin. We find that in human cells, a fraction of PA28γ-20S proteasome complexes localizes within HP1-linked heterochromatin foci. Our biochemical studies show that PA28γ interacts with HP1 proteins, particularly HP1β, which recruits the PA28γ-20S proteasome complexes to heterochromatin. Loss of PA28γ does not modify the localization of HP1β, its mobility within nuclear foci, or the level of H3K9 tri-methylation, but reduces H4K20 mono-and trimethylation, modifications involved in heterochromatin establishment. Concordantly, using a quantitative FRET-based microscopy assay to monitor nanometer-scale proximity between nucleosomes in living cells, we find that PA28γ regulates nucleosome proximity within heterochromatin, and thereby controls its compaction. This function of PA28γ is independent of the 20S proteasome. Importantly, HP1β on its own is unable to drive heterochromatin compaction without PA28γ. Combined, our data reveal an unexpected chromatin structural role of PA28γ, and provide new insights into the mechanism that controls HP1β-mediated heterochromatin compaction.