Chromatin-related functions are associated with spatial organization in the nucleus. We have investigated the relationship between the enhancer-blocking activity and subnuclear localization of the Drosophila melanogaster suHw insulator. Using fluorescent in situ hybridization, we observed that genomic loci containing the gypsy retrotransposon were distributed closer to the nuclear periphery than regions without the gypsy retrotransposon. However, transgenes containing a functional 340 bp suHw insulator did not exhibit such biased distribution towards the nuclear periphery, which suggests that the suHw insulator sequence is not responsible for the peripheral localization of the gypsy retrotransposon. Antibody stains showed that the two proteins essential for the suHw insulator activity, SUHW and MOD(MDG4), are not restricted to the nuclear periphery. The enhancer-blocking activity of suHw remained intact under the heat shock conditions, which was shown to disrupt the association of gypsy, SUHW and MOD(MDG4) with the nuclear periphery. Our results indicate that the suHw insulator can function in the nuclear interior, possibly through local interactions with chromatin components or other nuclear structures.