Heterochromatin protein 1 (HP1) of Drosophila and its homologs in vertebrates are key components of constitutive heterochromatin. Here we provide cytological evidence for the presence of heterochromatin within a euchromatic chromosome arm by immunolocalization of HP1 to the site of a silenced transgene repeat array. The amount of HP1 associated with arrays in polytene chromosomes is correlated with the array size. Inverted transposons within an array or increased proximity of an array to blocks of naturally occurring heterochromatin may increase transgene silencing without increasing HP1 labeling. Less dense anti-HP1 labeling is found at transposon arrays in which there is no transgene silencing. The results indicate that HP1 targets the chromatin of transposon insertions and binds more densely at a site with repeated sequences susceptible to heterochromatin formation.