Combinations of certain mutant alleles of the ovarian tumor gene permit the production of viable eggs. Two alleles that behave in this way are otu7 and otu1. Females homozygous for either allele are sterile, and their ovarian nurse cells (NC) contain giant polytene chromosomes of various morphologies. Fertile flies (otu+ / otu+, otu− / otu7, otu+ / otu11) have endopolyploid nurse cells with typical dispersed chromosomes. Fertile hybrids (otu7 / otu11) produce large numbers of polytene chromosomes comparable to, and often larger than, classic salivary gland (SG) chromosomes. Therefore, these otu hybrids provide a unique system for studying, at the chromosomal level, the activation and expression of genes functioning during oogenesis. The otu gene encodes a long and a short isoform. The normal long isoform appears to be responsible for the dispersion of chromosomes during the endomitotic DNA replications occurring in ovarian NCs. The genetic inactivation of euchromatic genes placed next to pericentric heterochromatin by a chromosomal rearrangement is accompanied by the compaction of corresponding chromosome regions. A comparative study of the manifestation of position‐effect variegation for the polytene chromosomes of SG cells and NCs was made using the Dp(1;1)pn2b and Dp(1;f)1337 rearrangements. The percentage frequencies of block formation in the SG and NC nuclei for Dp (1;1) pn2b rearrangement were 92.6% vs. 15.8%, respectively; for Dp(1;f) 1337, these values were 56.8% vs. 9.7%. Therefore heterochromatin belonging to germ line chromosomes is in a configuration that is far less likely to inactivate inserted segments of euchromatin than is heterachromatin from somatic chromosomes. Dev. Genet. 20:163–174. 1997. © 1997 Wiley‐Liss, Inc.