Compact chromatin is closely linked with gene silencing in part by sterically masking access to promoters, inhibiting transcription factor binding and preventing polymerase from efficiently transcribing a gene. However, a broader hypothesis suggests that chromatin compaction can be both a cause and a consequence of the locus histone modification state, with a tight bidirectional interaction underpinning bistable transcriptional states. To rigorously test this hypothesis, we developed a mathematical model for the dynamics of the HMR locus in Saccharomyces cerevisiae, that incorporates activating histone modifications, silencing proteins, and a dynamic, acetylation-dependent, three-dimensional locus size. Chromatin compaction enhances silencer protein binding, which in turn feeds back to remove activating histone modifications, leading to further compaction. The bistable output of the model was in good agreement with prior quantitative data, including switching rates from expressed to silent states (and vice versa), and protein binding/histone modification levels within the locus. We then tested the model by predicting changes in switching rates as the genetic length of the locus was increased, which were then experimentally verified. Such bidirectional feedback between chromatin compaction and the histone modification state may be a widespread and important regulatory mechanism given the hallmarks of many heterochromatic regions: physical chromatin compaction and dimerizing (or multivalent) silencing proteins.