Small RNAs can guide chromatin remodeling in mammalian cells, but the mechanisms involved are poorly understood. Previous reports have shown a requirement for overlapping transcription and the involvement of Argonaute (Ago) proteins. Here, we use the Regulatory Domain (RD) of the INK4/ARF locus as an experimental platform susceptible to siRNA-guided chromatin remodeling to interrogate about the mechanisms involved. We show that siRNA-guided chromatin remodeling of RD requires overlapping transcription, and targets the transcribed strand, but not the template strand, supporting an RNA:RNA recognition mechanism between the small RNA and the nascent RNA transcript. We found that heterochromatin formation can be triggered both by perfectly-matched double-stranded RNA precursors, as well as, by imperfectly-matched double-stranded RNA precursors. These observations, together with the fact that promoters are often subjected to overlapping transcription, open the possibility that miRNAs could also be able to guide heterochromatin formation at promoters. We demonstrate this possibility showing that miRNAs miR17-5p and miR20a from the oncomiR cluster miR-17-92 can induce heterochromatic features in promoters that undergo overlapping transcription and possess sequence complementarity to the miRNA seed region. These results unveil a new level of gene regulation by miRNAs.