S. cerevisiae chromosomes end with the telomeric repeat (TG1-3)n. When any of four Pol II genes was placed immediately adjacent to the telomeric repeats, expression of the gene was reversibly repressed as demonstrated by phenotype and mRNA analyses. For example, cells bearing a telomere-linked copy of ADE2 produced predominantly red colonies (a phenotype characteristic of ade2- cells) containing white sectors (characteristic of ADE2+ cells). Repression was due to proximity to the telomere itself since an 81 bp tract of (TG1-3)n positioned downstream of URA3 when URA3 was approximately 20 kb from the end of chromosome VII did not alter expression of the gene. However, this internal tract of (TG1-3)n could spontaneously become telomeric, in which case expression of the URA3 gene was repressed. These data demonstrate that yeast telomeres exert a position effect on the transcription of nearby genes, an effect that is under epigenetic control.