Chromatin domain boundaries, like scs or gypsy insulators in Drosophila, have been identified in transgene assays through their enhancer-blocking activity. Boundary elements in the bithorax complex (BX-C), such as Fab-7 and Fab-8, have been identified genetically and been shown to have insulator activity in transgene assays. However, it is not clear whether boundary elements identified in transgene assays will function appropriately in chromosomal contexts such as BX-C. Using gene conversion, we have substituted the scs or gypsy insulators for Fab-7. We find that both scs and gypsy are very potent insulators in the ectoderm, but surprisingly, the insulating activity of gypsy (but not scs) is lost in the CNS. Our results reveal that the Fab-7 boundary must have special properties that scs and gypsy lack, which allow it to function appropriately in BX-C regulation.