Understanding what factors influence plastic and genetic variation is valuable for predicting how organisms respond to changes in the selective environment. Here, using gene expression and DNA methylation as molecular phenotypes, we study environment-induced variation among Arabidopsis lyrata plants grown at lowland and alpine field sites. Our results show that gene expression is highly plastic, as many more genes are differentially expressed between the field sites than between populations. The environmentally responsive genes evolve under strong selective constraint — the strength of purifying selection on the coding sequence is high, while the rate of adaptive evolution is low. We find, however, that positive selection on cis-regulatory variants has likely contributed to genetically variable environment-responses, but such variants segregate only between distantly related populations. In contrast to gene expression, DNA methylation at genic regions is largely insensitive to the environment, and plastic methylation changes are not associated with differential gene expression. Besides genes, we detect environmental effects at transposable elements (TEs): TEs at the high-altitude field site have higher expression and methylation levels, suggestive of a broad-scale TE activation. Compared to the lowland population, plants native to the alpine environment harbor and excess of recent TE insertions, and we observe that specific TE families are enriched within environmentally responsive genes. In sum, although our results suggest that strong evolutionary constraint at environmentally responsive genes may limit the species' adaptive potential, plastic responses at TEs could rapidly create novel heritable variation that is primed towards environmental adaptation.