Although hybrid incompatibilities are readily observed in interspecific crosses, the genetic basis of most incompatibilities is still unknown. One persistent hypothesis is that hybrid dysfunction is due to a mismatch between parental genomes in selfish elements and the genes that regulate the proliferation of these elements. In this study, we evaluated the potential role of transposable elements in hybrid incompatibilities by examining hybrids between Drosophila virilis, a species that is polymorphic for the transposable element Penelope, and a closely related species, Drosophila lummei, that lacks active Penelope elements. Given the established role of Penelope elements in hybrid dysgenesis among D. virilis strains, we predicted that interspecies crosses that involve D. virilis with Penelope elements will exhibit greater hybrid incompatibility than crosses involving D. virilis without Penelope. We observed both prezygotic and postzygotic isolation, the magnitude of which was dependent on the specific cross. Using F1 and backcross experiments to rule out alternative genetic incompatibilities, we demonstrated that amplified reproductive isolation in the interspecific cross involving Penelope-carrying D. virilis can be explained by the action of TEs that induce dysgenesis within D. virilis. These experiments demonstrate that TEs can contribute to the expression of hybrid incompatibilities via presence/absence polymorphisms. Further, our data indicate that the same TEs can cause distinct incompatible phenotypes in intraspecific crosses (male sterility) compared to interspecific hybrid crosses (inviability).