Insulators can block the action of enhancers on promoters and the spreading of repressive chromatin, as well as facilitating specific enhancer-promoter interactions. However, recent studies have called into question whether the activities ascribed to insulators in model transgene assays actually reflect their functions in the genome. The Drosophila even skipped (eve) gene is a Polycomb (Pc) domain with a Pc-group response element (PRE) at one end, flanked by an insulator, an arrangement also seen in other genes. Here, we show that this insulator has three major functions. It blocks the spreading of the eve Pc domain, preventing repression of the adjacent gene, TER94. It prevents activation of TER94 by eve regulatory DNA. It also facilitates normal eve expression. When Homie is deleted in the context of a large transgene that mimics both eve and TER94 regulation, TER94 is repressed. This repression depends on the eve PRE. Ubiquitous TER94 expression is "replaced" by expression in an eve pattern when Homie is deleted, and this effect is reversed when the PRE is also removed. Repression of TER94 is attributable to spreading of the eve Pc domain into the TER94 locus, accompanied by an increase in histone H3 trimethylation at lysine 27. Other PREs can functionally replace the eve PRE, and other insulators can block PRE-dependent repression in this context. The full activity of the eve promoter is also dependent on Homie, and other insulators can promote normal eve enhancer-promoter communication. Our data suggest that this is not due to preventing promoter competition, but is likely the result of the insulator organizing a chromosomal conformation favorable to normal enhancer-promoter interactions. Thus, insulator activities in a native context include enhancer blocking and enhancer-promoter facilitation, as well as preventing the spread of repressive chromatin.