DNA is organized and compacted into higher-order structures in order to fit within nuclei and to facilitate gene regulation. Mechanisms by which higher order chromatin structures are established and maintained are poorly understood. In C. elegans, nuclear-localized small RNAs engage the nuclear RNAi machinery to regulate gene expression and direct the post-translational modification of histone proteins. Here we confirm a recent report suggesting that nuclear small RNAs initiate or maintain chromatin compaction states in C. elegans germ cells. Additionally, we show that experimentally provided small RNAs are sufficient to direct chromatin compaction and that this compaction requires the small RNA-binding Argonaute NRDE-3, the pre-mRNA associated factor NRDE-2, and the HP1-like protein HPL-2. Our results show that small RNAs, acting via the nuclear RNAi machinery and an HP1-like protein, are capable of driving chromatin compaction in C. elegans.