Species of the virilis group of Drosophila differ by multiple inversions and chromosome fusions that probably accompanied, or led to, speciation. Drosophila virilis has the primitive karyotype for the group, and natural populations are exceptional in having no chromosomal polymorphisms. We report that the genomic locations of Penelope and Ulysses transposons are nonrandomly distributed in 12 strains of D. virilis. Furthermore, Penelope and Ulysses insertion sites in D. virilis show a statistically significant association with the breakpoints of inversions found in other species of the virilis group. Sixteen newly induced chromosomal rearrangements were isolated from the progeny of D. virilis hybrid dysgenic crosses, including 12 inversions, 2 translocations, and 2 deletions. Penelope and Ulysses were associated with the breakpoints of over half of these new rearrangements. Many rearrangement breakpoints also coincide with the chromosomal locations of Penelope and Ulysses insertions in the parental strains and with breakpoints of inversions previously established for other species of the group. Analysis of homologous sequences from D. virilis and Drosophila lummei indicated that Penelope insertion sites were closely, but not identically, located at the nucleotide sequence level. Overall, these results indicate that Penelope and Ulysses insert in a limited number of genomic locations and are consistent with the possibility that these elements play an important role in the evolution of the virilis species group. B esides inducing many types of small mutations, such as insertions and deletions, transposable elements (TEs) are well known to promote the formation of inversions and other large and small chromosomal rearrangements (e.g., ref. 1). A growing body of evidence suggests that TEs mediate genome restructuring in natural populations of a wide variety of species. For example, in hominids, a Y chromosome inversion was mediated by recombination between LINE-1 elements before the radiation of extant human populations (2), and TEs appear to have played a role in mediating some of the major restructuring of the human sex chromosomes that has taken place during the last 300 million years (3). Also, the five families of Ty retrotransposons have been important in restructuring the Saccharomyces cerevisiae genome (4). In wild populations of Drosophila melanogaster, the hobo element has been implicated in the origin of endemic inversions (5) and in Drosophila buzzatii, the breakpoints (BPs) of a cosmopolitan inversion contain large insertions corresponding to a TE (6). The frequency and relative importance of TE-induced rearrangements in natural populations have, however, been difficult to establish in any satisfactory quantitative way. One likely reason is that instability and rapid divergence of TEs make their identification at rearrangement BPs increasingly difficult with the passage of time (7).In contrast to the rich karyotypic variation found in most of the 12 species of the D. virilis species group, one member, D. ...