Mutations induced by the gypsy retrotransposon in the forked (f) and cut (ct) loci render their expression under the control of the suppressor of Hairy-wing [su(Hw)] gene. This action is usually recessive, but su(Hw) acts as a dominant on the alleles fk, ctk and ctMRpN30. Molecular analysis of the gypsy element present in fk indicates that this allele is caused by the insertion of a modified gypsy in which the region normally containing twelve copies of the octamer-like repeat that interacts with the su(Hw) product is altered. Analysis of the gypsy element responsible for the ctk and ctMRpN30 mutations also reveals a correlation between the dominant action of su(Hw) and disruption of the octamer region. We propose that these disruptions alter the affinity and interaction of su(Hw) protein with gypsy DNA, thereby sensitizing the mutant phenotype to fluctuations in su(Hw) product.