Allelic variation in FLOWERING LOCUS C (FLC), a central repressor of flowering, contributes to natural differences in flowering behavior among Arabidopsis accessions. The weak nature of the FLC allele in the Ler accession is due to low levels of FLC RNA resulting, through an unknown mechanism, from a transposable element inserted in an intron of FLC. Here we show that the transposable element renders FLC-Ler subject to repressive chromatin modifications mediated by short interfering RNAs generated from homologous transposable elements in the genome. Our studies have general implications for the role of transposable elements in eukaryotic gene expression and evolution.