Expression of the three bithorax complex homeotic genes is orchestrated by nine parasegment-specific regulatory domains. Autonomy of each domain is conferred by boundary elements (insulators). Here, we have used an in situ replacement strategy to reanalyze the sequences required for the functioning of one of the best-characterized fly boundaries, Fab-7. It was initially identified by a deletion, Fab-71, that transformed parasegment (PS) 11 into a duplicate copy of PS12. Fab-71 deleted four nuclease hypersensitive sites, HS*, HS1, HS2, and HS3, located between the iab-6 and iab-7 regulatory domains. Transgenic and P-element excision experiments mapped the boundary to HS*+HS1+HS2, while HS3 was shown to be the iab-7 Polycomb response element (PRE). Recent replacement experiments showed that HS1 is both necessary and sufficient for boundary activity when HS3 is also present in the replacement construct. Surprisingly, while HS1+HS3 combination has full boundary activity, we discovered that HS1 alone has only minimal function. Moreover, when combined with HS3, only the distal half of HS1, dHS1, is needed. A ~1,000 kD multiprotein complex containing the GAF protein, called the LBC, binds to the dHS1 sequence and we show that mutations in dHS1, that disrupt LBC binding in nuclear extracts, eliminate boundary activity and GAF binding in vivo. HS3 has binding sites for GAF and Pho proteins that are required for PRE silencing. In contrast, HS3 boundary activity only requires the GAF binding sites. LBC binding with HS3 in nuclear extracts, and GAF association in vivo, depend upon the HS3 GAF sites, but not the Pho sites. Consistent with a role for the LBC in HS3 boundary activity, the boundary function of the dHS1+HS3mPho combination is lost when the flies are heterozygous for a mutation in the GAF gene. Taken together, these results reveal a novel function for the iab-7 PREs in chromosome architecture.