Hybrid incompatibility between Drosophila melanogaster and D. simulans is caused by a lethal interaction of the proteins encoded by the Hmr and Lhr genes. In D. melanogaster the loss of HMR results in mitotic defects, an increase in transcription of transposable elements and a deregulation of heterochromatic genes. To better understand the molecular mechanisms that mediate HMR's function, we measured genome-wide localization of HMR in D. melanogaster tissue culture cells by chromatin immunoprecipitation. Interestingly, we find HMR localizing to genomic insulator sites that can be classified into two groups. One group belongs to gypsy insulators and another one borders HP1a bound regions at active genes. The transcription of the latter group genes is strongly affected in larvae and ovaries of Hmr mutant flies. Our data suggest a novel link between HMR and insulator proteins, a finding that implicates a potential role for genome organization in the formation of species.