A transcriptionally silent chromosomal domain is found in the mating-type region of fission yeast. Here we show that this domain is delimited by 2-kb inverted repeats, IR-L and IR-R. IR-L and IR-R prevent the expansion of transcription-permissive chromatin into the silenced region and that of silenced chromatin into the expressed region. Their insulator activity is partially orientation dependent. The silencing defects that follow deletion or inversion of IR-R are suppressed by high dosage of the chromodomain protein Swi6. Combining chromosomal deletions and Swi6 overexpression shows that IR-L and IR-R provide firm borders in a region where competition between silencing and transcriptional competence occurs. IR-R possesses autonomously replicating sequence (ARS) activity, leading to a model where replication factors, or replication itself, participate in boundary formation.