A major role of the RNAi pathway in Schizosaccharomyces pombe is to nucleate heterochromatin, but it remains unclear whether this mechanism is conserved. To address this question in Drosophila, we performed genomewide localization of Argonaute2 (AGO2) by chromatin immunoprecipitation (ChIP)-seq in two different embryonic cell lines and found that AGO2 localizes to euchromatin but not heterochromatin. This localization pattern is further supported by immunofluorescence staining of polytene chromosomes and cell lines, and these studies also indicate that a substantial fraction of AGO2 resides in the nucleus. Intriguingly, AGO2 colocalizes extensively with CTCF/CP190 chromatin insulators but not with genomic regions corresponding to endogenous siRNA production. Moreover, AGO2, but not its catalytic activity or Dicer-2, is required for CTCF/CP190-dependent Fab-8 insulator function. AGO2 interacts physically with CTCF and CP190, and depletion of either CTCF or CP190 results in genome-wide loss of AGO2 chromatin association. Finally, mutation of CTCF, CP190, or AGO2 leads to reduction of chromosomal looping interactions, thereby altering gene expression. We propose that RNAi-independent recruitment of AGO2 to chromatin by insulator proteins promotes the definition of transcriptional domains throughout the genome.

Chromatin insulators organize the genome into distinct transcriptional domains and contribute to cell type–specific chromatin organization. However, factors regulating tissue-specific insulator function have not yet been discovered. Here we identify the RNA recognition motif-containing protein Shep as a direct interactor of two individual components of the gypsy insulator complex in Drosophila. Mutation of shep improves gypsy-dependent enhancer blocking, indicating a role as a negative regulator of insulator activity. Unlike ubiquitously expressed core gypsy insulator proteins, Shep is highly expressed in the central nervous system (CNS) with lower expression in other tissues. We developed a novel, quantitative tissue-specific barrier assay to demonstrate that Shep functions as a negative regulator of insulator activity in the CNS but not in muscle tissue. Additionally, mutation of shep alters insulator complex nuclear localization in the CNS but has no effect in other tissues. Consistent with negative regulatory activity, ChIP–seq analysis of Shep in a CNS-derived cell line indicates substantial genome-wide colocalization with a single gypsy insulator component but limited overlap with intact insulator complexes. Taken together, these data reveal a novel, tissue-specific mode of regulation of a chromatin insulator.