The Drosophila gypsy insulator contains binding sites for the Suppressor of Hairy-wing [Su(Hw)] protein. Enhancer and silencer blocking require Su(Hw) recruitment of Mod(mdg4)-67.2, a BTB/POZ domain protein that interacts with Su(Hw) through a carboxyl-terminal acidic domain. Here we conducted mutational analyses of the Mod(mdg4)-67.2 BTB domain. We demonstrate that this domain is essential for insulator function, in part through direction of protein dimerization. Our studies revealed the presence of a second domain (DD) that contributes to Mod(mdg4)-67.2 dimerization when the function of the BTB domain is compromised. Additionally, we demonstrate that mutations in amino acids of the charged pocket in the BTB domain that retain dimerization of the mutated protein cause a loss of insulator function. In these cases, the mutant proteins failed to localize to chromosomes, suggesting a role for the BTB domain in chromosome association. Interestingly, replacement of the Mod(mdg4)-67.2 BTB domain with the GAF BTB domain produced a nonfunctional protein. Taken together, these data suggest that the Mod(mdg4)-67.2 BTB domain confers novel activities to gypsy insulator function.