Drosophila telomeres are elongated by the transposition of telomere-specific retrotransposons rather than telomerase activity. Proximal to the terminal transposon array, Drosophila chromosomes contain several kilobases of a complex satellite DNA termed telomere-associated sequences (TASs). Reporter genes inserted into or next to the TAS are silenced through a mechanism called telomere position effect (TPE). TPE is reminiscent of the position effect variegation (PEV) induced by Drosophila constitutive heterochromatin. However, most genes that modulate PEV have no effect on TPE, and systematic searches for TPE modifiers have so far identified only a few dominant suppressors. Surprisingly, only a few of the genes required to prevent telomere fusion have been tested for their effect on TPE. Here, we show that with the exception of the effete (eff; also called UbcD1) mutant alleles, none of the tested mutations at the other telomere fusion genes affects TPE. We also found that mutations in eff, which encodes a class I ubiquitin-conjugating enzyme, act as suppressors of PEV. Thus, eff is one of the rare genes that can modulate both TPE and PEV. Immunolocalization experiments showed that Eff is a major constituent of polytene chromosomes. Eff is enriched at several euchromatic bands and interbands, the TAS regions, and the chromocenter. Our results suggest that Eff associates with different types of chromatin affecting their abilities to regulate gene expression.