A transgene inserted in euchromatin exhibits mosaic expression when targeted by a fusion protein made of the DNA-binding domain of GAL4 and the heterochromatin-associated protein HP1. The silencing responds to the loss of a dose of the dominant modifiers of position-effect variegation Su(var)3-7 and Su(var)2-5, the locus encoding HP1. The genomic environs of the insertion site at 87C1 comprise the dispersed repetitive elements micropia and alphagamma. In the presence of the GAL4-HP1 chimera, the polytene chromosomes of this line form loops between the insertion site of the transgene and six other sections of chromosome 3R, as well as, rarely, with pericentric and telomeric heterochromatin. In contrast to the insertion site of the transgene at 87C, the six loop-forming sites in the euchromatic arm were each previously described as intercalary heterochromatin. Moreover, GAL4-HP1 tethering on one homologue trans-inactivates the reporter on the other. HP1, probably together with other partners, could thus facilitate the coalescence of dispersed middle repetitive sequences, and organize the heterochromatic structure responsible for the variegated silencing of nearby euchromatic genes.