Binding sites for the Drosophila boundary element-associated factors BEAF-32A and -32B are required for the insulator activity of the scs' insulator. BEAF binds to hundreds of sites on polytene chromosomes, indicating that BEAF-utilizing insulators are an important class in Drosophila. To gain insight into the role of BEAF in flies, we designed a transgene encoding a dominant-negative form of BEAF under GAL4 UAS control. This BID protein encompasses the BEAF self-interaction domain. Evidence is provided that BID interacts with BEAF and interferes with scs' insulator activity and that BEAF is the major target of BID in vivo. BID expression during embryogenesis is lethal, implying that BEAF is required during early development. Expression of BID in eye imaginal discs leads to a rough-eye phenotype, and this phenotype is rescued by a third copy of the BEAF gene. Expression of BID in salivary glands leads to a global disruption of polytene chromatin structure, and this disruption is largely rescued by an extra copy of BEAF. BID expression also enhances position-effect variegation (PEV) of the w(m4h) allele and a yellow transgene inserted into the pericentric heterochromatin of chromosome 2R, while a third copy of the BEAF gene suppresses PEV of both genes. These results support the hypothesis that BEAF-dependent insulators function by affecting chromatin structure or dynamics.