Chromatin insulators are genetic elements implicated in the organization of chromatin and the regulation of transcription. In Drosophila, different insulator types were characterized by their locus-specific composition of insulator proteins and co-factors. Insulators mediate specific long-range DNA contacts required for the three dimensional organization of the interphase nucleus and for transcription regulation, but the mechanisms underlying the formation of these contacts is currently unknown. Here, we investigate the molecular associations between different components of insulator complexes (BEAF32, CP190 and Chromator) by biochemical and biophysical means, and develop a novel single-molecule assay to determine what factors are necessary and essential for the formation of long-range DNA interactions. We show that BEAF32 is able to bind DNA specifically and with high affinity, but not to bridge long-range interactions (LRI). In contrast, we show that CP190 and Chromator are able to mediate LRI between specifically-bound BEAF32 nucleoprotein complexes in vitro. This ability of CP190 and Chromator to establish LRI requires specific contacts between BEAF32 and their C-terminal domains, and dimerization through their N-terminal domains. In particular, the BTB/POZ domains of CP190 form a strict homodimer, and its C-terminal domain interacts with several insulator binding proteins. We propose a general model for insulator function in which BEAF32/dCTCF/Su(HW) provide DNA specificity (first layer proteins) whereas CP190/Chromator are responsible for the physical interactions required for long-range contacts (second layer). This network of organized, multi-layer interactions could explain the different activities of insulators as chromatin barriers, enhancer blockers, and transcriptional regulators, and suggest a general mechanism for how insulators may shape the organization of higher-order chromatin during cell division.