Histone covalent modifications and 26S proteasome-mediated proteolysis modulate many regulatory events in eukaryotes. In Saccharomyces cerevisiae, heterochromatin mediates transcriptional silencing at telomeres, HM loci and rDNA array. Here, we show that proteasome-associated Sem1p and its interacting partner, Ubp6p (a deubiquitinating enzyme), are essential to maintain telomeric silencing. Simultaneous deletion of SEM1 and UBP6 induces dramatic silencing defect accompanied by significantly increased level of ubiquitinated-histone H2B and markedly reduced levels of acetylated-lysine 14 and 23 on histone H3 at the telomeres. Further, the loss of Sem1p and Ubp6p triggers relocation of silencing factors (e.g. Sir proteins) from telomere to HM loci and rDNA array. Such relocation of silencing factors enhances gene silencing at HM loci and rDNA array, but diminishes telomeric silencing. Interestingly, both Sem1p and Ubp6p participate in the proteolytic function of the proteasome. However, we find that the telomeric silencing is not influenced by proteolysis. Taken together, our data demonstrate that Sem1p and Ubp6p maintain telomeric heterochromatin structure (and hence silencing) through modulation of histone covalent modifications and association of silencing factors independently of the proteolytic function of the proteasome, thus offering a new regulatory mechanism of telomeric silencing.