Surface instability, dynamics, and morphology in spontaneous dewetting of a thin liquid film on a chemically heterogeneous substrate are studied based on nonlinear simulations for a system subjected to a long range van der Waals attraction and soft short-range repulsion. Characteristics of dewetting by a heterogeneity are clearly contrasted with the spinodal dewetting on a homogeneous surface. In the presence of a chemical heterogeneity, the instability is engendered by the gradient of intermolecular interactions that lead to a microscale wettability contrast. The time scale of instability can be substantially less than the spinodal time scale, especially for thinner films close to the critical thickness, and it varies inversely with the potential difference induced by the heterogeneity. Heterogeneity, on a very small length scale, can even destabilize a spinodally stable film. A local ordering of the structure (droplets and holes) around the heterogeneity produces "castle-moat," "ripples," and "flower" like morphologies, which are not predicted by the spinodal mechanism. A local enhancement of the long-range attraction on the patch leads to a longer ranged ordering of holes around the heterogeneous patch for relatively thicker films. In contrast, a decrease in the short-range repulsion on the heterogeneous patch encourages an even longer-ranged ordering of droplets for the thinner films.