Many heterogametic organisms adjust sex chromosome expression to accommodate differences in gene dosage. This requires selective recruitment of regulatory factors to the modulated chromosome. How these factors are localized to a chromosome with requisite accuracy is poorly understood. Drosophila melanogaster males increase expression from their single X chromosome. Identification of this chromosome involves cooperation between different classes of X-identity elements. The chromatin entry sites (CES) recruit a chromatin-modifying complex that spreads into nearby genes and increases expression. In addition, a family of satellite repeats that is enriched on the X chromosome, the 1.688X repeats, promotes recruitment of the complex to nearby genes. The 1.688X repeats and CES are dissimilar, and appear to operate through different mechanisms. Interestingly, the siRNA pathway and siRNA from a 1.688X repeat also promote X recognition. We postulate that siRNA-dependent modification of 1.688X chromatin contributes to recognition of nearby genes. In accord with this, we found enrichment of the siRNA effector Argonaute2 (Ago2) at some 1.688X repeats. Mutations in several proteins that physically interact with Ago2, including the histone methyltransferase Su(var)3-9, enhance the lethality of males with defective X recognition. Su(var)3-9 deposits H3K9me2 on some 1.688X repeats, and this mark is disrupted upon ectopic expression of 1.688X siRNA. Furthermore, integration of 1.688X DNA on an autosome induces local H3K9me2 deposition, but enhances expression of nearby genes in a siRNA-dependent manner. Our findings are consistent with a model in which siRNA-directed modification of 1.688X chromatin contributes to recognition of the male X chromosome for dosage compensation.