Ligand-bound nuclear receptors (NR) activate transcription of the target genes. This activation is coupled with histone modifications and chromatin remodeling through the function of various coregulators. However, the nature of the dependence of a NR coregulator action on the presence of the chromatin environment at the target genes is unclear. To address this issue, we have developed a modified position effect variegation experimental model system that includes an androgen-dependent reporter transgene inserted into either a pericentric heterochromatin region or a euchromatic region of Drosophila chromosome. Human androgen receptor (AR) and its constitutively active truncation mutant (AR AF-1) were transcriptionally functional in both chromosomal regions. Predictably, the level of AR-induced transactivation was lower in the pericentric heterochromatin. In genetic screening for AR AF-1 coregulators, Drosophila CREB binding protein (dCBP) was found to corepress AR transactivation at the pericentric region whereas it led to coactivation in the euchromatic area. Mutations of Sir2 acetylation sites or deletion of the CBP acetyltransferase domain abrogated dCBP corepressive action for AR at heterochromatic areas in vivo. Such a CBP corepressor function for AR was observed in the transcriptionally silent promoter of an AR target gene in cultured mammalian cells. Thus, our findings suggest that the action of NR coregulators may depend on the state of chromatin at the target loci.