Clonally variant expression of surface antigens allows the malaria parasite Plasmodium falciparum to evade immune recognition during blood stage infection and secure malaria transmission. We demonstrate that heterochromatin protein 1 (HP1), an evolutionary conserved regulator of heritable gene silencing, controls expression of numerous P. falciparum virulence genes as well as differentiation into the sexual forms that transmit to mosquitoes. Conditional depletion of P. falciparum HP1 (PfHP1) prevents mitotic proliferation of blood stage parasites and disrupts mutually exclusive expression and antigenic variation of the major virulence factor PfEMP1. Additionally, PfHP1-dependent regulation of PfAP2-G, a transcription factor required for gametocyte conversion, controls the switch from asexual proliferation to sexual differentiation, providing insight into the epigenetic mechanisms underlying gametocyte commitment. These findings show that PfHP1 is centrally involved in clonally variant gene expression and sexual differentiation in P. falciparum and have major implications for developing antidisease and transmission-blocking interventions against malaria.