The path by which regulatory sequence can change, yet preserve function, is an important open question for both evolution and bioinformatics. The recent sequencing of two additional species of Drosophila plus the wealth of data on gene regulation in the fruit fly provides new means for addressing this question. For regulatory sequences, indels account for more base pairs (bp) of change than substitutions (between Drosophila melanogaster and Drosophila yakuba), though they are fewer in number. Using Drosophila pseudoobscura as an out-group, we can distinguish insertions from deletions (with maximum parsimony criteria), and find a ratio between 1 and 5 (insertions to deletions) that is species dependent and much larger than the ratio of 1/8 for neutral sequences (Petrov and Hartl 1998). Because neutral sequence is rapidly cleared from the genome, most noncoding regions which preserve their length between D. melanogaster-D. pseudoobscura and have an excess of insertions over deletions should be functional. A fraction of 15%-18% (i.e., more than 20 standard deviations from random expectation) of the regulatory sequence is covered by low copy number tandem repeats whose repeating unit has an average length of 5-10 bp and which occur preferentially (25%-45% coverage) in indels. All indels may be due to tandem repeats if we extrapolate the detection efficiency of the repeat-finding algorithms using the observed point mutation rate between the species we compare. Sequence creation by local duplication accords with the tendency for multiple copies of transcription factor-binding sites to occur in regulatory modules. Thus, indel events and tandem repeats in particular need to be incorporated into models of regulatory evolution because they can alter the rate at which beneficial variants arise and should also influence bioinformatic algorithms that parse regulatory sequences into binding sites.