Insulators are specialized DNA sequences that prevent enhancer-activated transcription only when interposed between an enhancer and its target promoter. The Drosophila gypsy retrotransposon contains an insulator composed of 12 degenerate binding sites for the Suppressor of Hairy-wing [Su(Hw)] protein that are separated by AT-rich DNA possessing sequence motifs common to matrix/scaffold attachment regions (MARs/SARs). To further understand mechanisms of insulator function, the parameters required for the gypsy insulator to prevent enhancer-activated transcription were examined. Synthetic binding regions were created by reiteration of a single Su(Hw) binding site that lacked the MAR/SAR motifs. These synthetic binding regions reconstituted insulator activity, suggesting that the property of enhancer blocking may be distinct from matrix association. We found that the number and spacing of Su(Hw) binding sites within the gypsy insulator, as well as the strength of the enhancer to be blocked, were important determinants of insulator function. These results provide a link between transcription and insulation, suggesting that these processes may be mechanistically interconnected.