Germline stem cells (GSCs) are the progenitor cells for the entire population of an organism’s germline. In Drosophila, these cells reside in a well-defined cellular niche that is required for both their maintenance (self-renewal) and differentiation (asymmetric division resulting in a daughter cell that differs from the GSC). The stem-cell maintenance factor Stonewall (Stwl) has undergone adaptive evolution across the Drosophila phylogeny and has been implicated in heterochromatin maintenance. In the hopes of identifying potential drivers of selection at Stwl, we investigated the molecular functions of Stwl. We performed RNA-Seq on stwl mutant ovaries and testes to assay the transcript abundance of transposable elements in the absence of functional Stwl. We found that stwl mutant ovaries (but not testes) show significant de-repression of many transposon families, but that heterochromatic genes are not preferentially misregulated relative to euchromatic genes. We also found that testis-enriched genes, including the differentiation factor bgcn and a large cluster on chromosome 2, are upregulated in stwl mutant ovaries. This abnormal masculinization of the ovary was accompanied by ectopic expression of a number of testis- and somatic-enriched genes. Surprisingly, we also found that RNAi knockdown of stwl in S2 cells results in ectopic expression of these gene classes. In order to understand how Stwl regulates transcription, we developed antibodies against a Stwl epitope and thoroughly validated it prior to performing parallel ChIP-Seq and RNA-Seq experiments in S2 cells. Analysis of Stwl binding sites shows that Stwl binds upstream of transcription start sites and localizes to heterochromatic sequences. We also show that Stwl is enriched at repetitive sequences associated with telomeres. Finally, we identify binding motifs that are shared with known insulator binding proteins. We propose that Stwl affects gene regulation by binding insulators and establishing chromatin boundaries.