We have analysed the structures of three phenotypic revertant alleles of a gypsy retrotransposon-induced mutation at the cut locus of Drosophila melanogaster. All three revertants are associated with the insertion of jockey transposons into a common region of gypsy. Two of these alleles are complete reversions to wild type. One complete revertant (ct+D) is derived from a third allele, a partial revertant (ctMRpD) by a deletion of part of the gypsy sequence flanking the jockey transposon. Sequence differences between the jockey elements in ctMRpD and ct+D suggest that this deletion may have been created by the insertion of a second jockey near to the first, followed by recombinational excision of a composite jockey and the region between the two genetic elements. The other complete revertant also carries a deletion of gypsy DNA flanking the jockey insertion. The deleted regions of both complete revertants and the target region for all the jockey insertions contain a repeated sequence that resembles a transcriptional enhancer. The strength of the cut phenotype in these mutants correlates with the proportion of this region remaining near the gypsy transcriptional start site, suggesting that the jockey insertions relieve the gypsy-induced mutation at cut by interfering with a region which is required for the transcriptional competence of gypsy.