Prader-Willi syndrome (PWS), a disorder of genomic imprinting, is characterized by neonatal hypotonia, hypogonadism, small hands and feet, hyperphagia and obesity in adulthood. PWS results from the loss of paternal copies of the cluster of SNORD116 C/D box snoRNAs and their host transcript, 116HG, on human chromosome 15q11-q13. We have investigated the mechanism of repression of the maternal SNORD116 cluster and 116HG. Here, we report that the zinc-finger protein ZNF274, in association with the histone H3 lysine 9 (H3K9) methyltransferase SETDB1, is part of a complex that binds to the silent maternal but not the active paternal alleles. Knockdown of SETDB1 in PWS-specific induced pluripotent cells (iPSCs) causes a decrease in the accumulation of H3K9 trimethylation (H3K9me3) at 116HG and corresponding accumulation of the active chromatin mark histone H3 lysine 4 dimethylation (H3K4me2). We also show that upon knockdown of SETDB1 in PWS-specific iPSCs, expression of maternally silenced 116HG RNA is partially restored. SETDB1 knockdown in PWS iPSCs also disrupts DNA methylation at the PWS-IC where a decrease in 5-methylcytosine is observed in association with a concomitant increase in 5-hydroxymethylcytosine. This observation suggests that the ZNF274/SETDB1 complex bound to the SNORD116 cluster may protect the PWS-IC from DNA demethylation during early development. Our findings reveal novel epigenetic mechanisms that function to repress the maternal 15q11-q13 region.