Short tandem repeat (STR) instability causes transcriptional silencing in several repeat expansion disorders. In fragile X syndrome (FXS), mutation-length expansion of a CGG STR represses FMR1 via local DNA methylation. Here, we find megabase-scale H3K9me3 domains on autosomes and encompassing FMR1 on the X chromosome in FXS patient-derived iPSCs, iPSC-derived neural progenitors, EBV-transformed lymphoblasts, and brain tissue with mutation-length CGG expansion. H3K9me3 domains connect via inter-chromosomal interactions and demarcate severe misfolding of TADs and loops. They harbor long synaptic genes replicating at the end of S phase, replication-stress-induced double-strand breaks, and STRs prone to stepwise somatic instability. CRISPR engineering of the mutation-length CGG to premutation length reverses H3K9me3 on the X chromosome and multiple autosomes, refolds TADs, and restores gene expression. H3K9me3 domains can also arise in normal-length iPSCs created with perturbations linked to genome instability, suggesting their relevance beyond FXS. Our results reveal Mb-scale heterochromatinization and trans interactions among loci susceptible to instability.