Tandem repeats of Drosophila transgenes can cause heterochromatic variegation for transgene expression in a copy-number and orientation-dependent manner. Here, we demonstrate different ways in which these transgene repeat arrays interact with other sequences at a distance, displaying properties identical to those of a naturally occurring block of interstitial heterochromatin. Arrays consisting of tandemly repeated white transgenes are strongly affected by proximity to constitutive heterochromatin. Moving an array closer to heterochromatin enhanced variegation, and enhancement was reverted by recombination of the array onto a normal sequence chromosome. Rearrangements that lack the array enhanced variegation of white on a homologue bearing the array. Therefore, silencing of white genes within a repeat array depends on its distance from heterochromatin of the same chromosome or of its paired homologue. In addition, white transgene arrays cause variegation of a nearby gene in cis, a hallmark of classical position-effect variegation. Such spreading of heterochromatic silencing correlates with array size. Finally, white transgene arrays cause pairing-dependent silencing of a non-variegating white insertion at the homologous position.