Cellular adaptation to environmental changes and stress relies on a wide range of regulatory mechanisms that are tightly controlled at several levels, including transcription. Chromatin structure and chromatin binding proteins are important factors contributing to the transcriptional response to stress. However, it remains largely unknown to what extent specific chromatin factors influence the response to distinct forms of stress in a developmental context. One of the best characterized stress response pathways is the unfolded protein response (UPR), which is activated by accumulation of misfolded proteins in the endoplasmic reticulum (ER). Here, we show that Caenorhabditis elegans heterochromatin protein like-2 (HPL-2), the homolog of heterochromatin protein 1 (HP1), down-regulates the UPR in the intestine. Inactivation of HPL-2 results in an enhanced resistance to ER stress dependent on the X-box binding protein 1 (XBP-1)/inositol requiring enzyme 1 branch of the UPR and the closely related process of autophagy. Increased resistance to ER stress in animals lacking HPL-2 is associated with increased basal levels of XBP-1 activation and ER chaperone expression under physiological conditions, which may in turn activate an adaptive response known as ER hormesis. HPL-2 expression in intestinal cells is sufficient to rescue stress resistance, whereas expression in neuronal cells negatively influenced the ER stress response through a cell-nonautonomous mechanism. We further show that the retinoblastoma protein homolog LIN-35 and the LIN-13 zinc finger protein act in the same pathway as HPL-2 to limit the ER stress response. Altogether, our results point to multiple functions for HP1 in different cell types to maintain ER homeostasis.