Catechol-O-methyltransferase (COMT) is a key enzyme responsible for the degradation of dopamine and norepinephrine. COMT activity influences cognitive and emotional states in humans and aggression and drug responses in mice. This study identifies the key sequence variant that leads to differences in Comt mRNA and protein levels among mice, and that modulates synaptic function and pharmacological and behavioral traits.We examined Comt expression in multiple tissues in over 100 diverse strains and several genetic crosses. Differences in expression map back to Comt and are generated by a 230 nt insertion of a B2 short interspersed element (B2 SINE) in the proximal 3' UTR of Comt in C57BL/6J. This transposon introduces a premature polyadenylation signal and creates a short 3' UTR isoform. The B2 SINE is shared by a subset of strains, including C57BL/6J, A/J, BALB/cByJ, and AKR/J, but is absent in others, including DBA/2J, FVB/NJ, SJL/J, and wild subspecies. The short isoform is associated with increased protein expression in prefrontal cortex and hippocampus relative to the longer ancestral isoform. The Comt variant causes downstream differences in the expression of genes involved in synaptic function, and also modulates phenotypes such as dopamine D1 and D2 receptor binding and pharmacological responses to haloperidol.We have precisely defined the B2 SINE as the source of variation in Comt and demonstrated that a transposon in a 3' UTR can alter mRNA isoform use and modulate behavior. The recent fixation of the variant in a subset of strains may have contributed to the rapid divergence of inbred strains.