Transgenes inserted into the telomeric regions of Drosophila melanogaster chromosomes exhibit position effect variegation (PEV), a mosaic silencing characteristic of euchromatic genes brought into juxtaposition with heterochromatin. Telomeric transgenes on the second and third chromosomes are flanked by telomeric associated sequences (TAS), while fourth chromosome telomeric transgenes are most often associated with repetitious transposable elements. Telomeric PEV on the second and third chromosomes is suppressed by mutations in Su(z)2, but not by mutations in Su(var)2-5 (encoding HP1), while the converse is true for telomeric PEV on the fourth chromosome. This genetic distinction allowed for a spatial and molecular analysis of telomeric PEV. Reciprocal translocations between the fourth chromosome telomeric region containing a transgene and a second chromosome telomeric region result in a change in nuclear location of the transgene. While the variegating phenotype of the white transgene is suppressed, sensitivity to a mutation in HP1 is retained. Corresponding changes in the chromatin structure and inducible activity of an associated hsp26 transgene are observed. The data indicate that both nuclear organization and local chromatin structure play a role in this telomeric PEV.