Insulators are DNA elements that establish independent transcriptional domains within eukaryotic genomes. The Drosophila scs and scs' insulators localize near the borders of a structural domain in the polytene chromosomes, known as a puff, produced by transcription of the 87A heat shock protein (hsp) genes. It has been suggested that scs and scs' are boundary elements that delimit this decondensed chromatin domain, reflecting the mechanism by which these sequences act to constrain regulatory interactions. This model was tested using transposons that carried a yellow gene to assess enhancer blocking and an hsp70-lacZ gene to examine the structure of a heat shock puff in the presence and absence of insulators. We found that although scs and scs' blocked enhancer function, these sequences did not prevent the spread of decondensation resulting from hsp70-lacZ transcription. Further analysis of the endogenous 87A locus demonstrated that scs and scs' reside within, not at, the borders of the puff. Taken together, our studies suggest that scs and scs' are not boundary elements that block the propagation of an altered chromatin state associated with puff formation. We propose that these insulators may have a direct role in limiting regulatory interactions in the gene-dense 87A region.