Although tremendous progress has been made toward identifying factors that regulate nucleosome structure and positioning, the mechanisms that regulate higher-order chromatin structure remain poorly understood. Recent studies suggest that the ISWI chromatin-remodeling factor plays a key role in this process by promoting the assembly of chromatin containing histone H1. To test this hypothesis, we investigated the function of H1 in Drosophila. The association of H1 with salivary gland polytene chromosomes is regulated by a dynamic, ATP-dependent process. Reducing cellular ATP levels triggers the dissociation of H1 from polytene chromosomes and causes chromosome defects similar to those resulting from the loss of ISWI function. H1 knockdown causes even more severe defects in chromosome structure and a reduction in nucleosome repeat length, presumably due to the failure to incorporate H1 during replication-dependent chromatin assembly. Our findings suggest that ISWI regulates higher-order chromatin structure by modulating the interaction of H1 with interphase chromosomes.