LSD1 represses and activates transcription by demethylating histone H3K4me and H3K9me, respectively. Genetic ablation of the S. pombe homologs, splsd1 and splsd2, resulted in slow growth and lethality, respectively, underscoring their physiological importance. spLsd1 and spLsd2 form a stable protein complex, which exhibits demethylase activity toward methylated H3K9 in vitro. Both proteins were associated with the heterochromatin boundary regions and euchromatic gene promoters. Loss of spLsd1 resulted in increased H3K9 methylation accompanied by reduced euchromatic gene transcription and heterochromatin propagation. Removal of the H3K9 methylase Clr4 partially suppressed the slow growth phenotype of splsd1Delta. Conversely, catalytically inactivating point mutations in the splsd1 and splsd2 genes partially mimicked the growth and heterochromatin propagation phenotypes. Taken together, these findings suggest the importance of both enzymatic and nonenzymatic roles of spLsd1 in regulating heterochromatin propagation and euchromatic transcription and also suggest that misregulation of spLsd1/2 is likely to impact the epigenetic state of the cell.