Gene silencing by heterochromatin is proposed to occur in part as a result of the ability of heterochromatin protein 1 (HP1) proteins to spread across large regions of the genome, compact the underlying chromatin and recruit diverse ligands\cite{pmid21346195,pmid10753776,pmid9169472}. The mechanism of how HP1 achieves this silencing activity is not yet described, though much work has shown it associates with many diverse chromatin components and on many different timescales. We identified a new property of the human HP1$\alpha$ protein: the ability to form phase-separated droplets. While unmodified HP1$\alpha$ is soluble, either phosphorylation of its N-terminal extension or DNA binding promotes the formation of phase-separated droplets. Phosphorylation driven phase separation can be promoted or reversed by specific HP1$\alpha$ ligands. Known components of heterochromatin such as nucleosomes and DNA preferentially partition into the HP1$\alpha$ droplets, but molecules such as the transcription factor TFIIB show no preference. Using a single-molecule DNA curtain assay, we found that both unmodified and phosphorylated HP1$\alpha$ induce rapid compaction of DNA strands into puncta, although with different characteristics\cite{pmid20580955}. By direct protein delivery into mammalian cells we found that an HP1$\alpha$ mutant incapable of phase separation in vitro forms smaller and fewer nuclear puncta than phosphorylated HP1$\alpha$. These findings suggest that heterochromatin-mediated gene silencing may occur in part through sequestration of compacted chromatin in phase-separated HP1 droplets, which are dissolved or formed by specific ligands on the basis of nuclear context. Importantly, this activity is rooted in mechanistic changes within the HP1 protein itself. The ability to assemble and phase separate is prefaced by a large conformational change directed through the unstructured NTE, CTE, and hinge regions. The change is dependent on both length and composition of charges/hydrophobicity within these regions. This leads to a belief that though rooted in regions that appear unstructured, there is delicate mechanism behind the ordered transition to a phase-separated assembly.