The suppressor of Hairy-wing [su(Hw)] protein mediates the mutagenic effects of the gypsy retrotransposon by blocking enhancer activity. These repressive effects are general, can occur over long distances and require that the su(Hw) protein is bound between the affected enhancer and promoter. The effects of the su(Hw) binding region on yolk protein (yp) gene expression were determined. These genes are regulated by shared enhancers in the intergenic region, which provided a method to examine whether an enhancer blocked by the su(Hw) protein remained functional. We demonstrate that a blocked enhancer is completely active, supporting the proposal that the su(Hw) protein is an insulator protein that acts by forming a new boundary in a pre-existing chromatin domain, thereby preventing the interaction of regulatory elements located upstream of the insertion site with the promoter. In addition, we found that yp promoter function is not diminished by sharing enhancers, suggesting that these enhancers are not rate limiting for transcriptional activation. Lastly, our data indicate that yp promoter activity is interdependent, such that transcription from one promoter influences the level of activity of the linked promoter.