Transposable elements (TEs) are genome parasites that can increase their copy number at the expense of host fitness. Natural selection against deleterious TE insertions is a potent evolutionary mechanism for counterbalancing the constant increase in TE copy number. There is a rich understanding of the deleterious effects of TEs that are mediated by physical disruption of DNA, such as insertions of TEs into functional elements. Instead, we focus on the largely unexplored epigenetic consequences of TE insertions. In Drosophila, euchromatic TEs can be epigenetically silenced via small RNA-dependent enrichment of heterochromatic marks, which can spread to and influence the function of adjacent sequences. We hypothesized that this spread of heterochromatic marks from euchromatic TEs has deleterious functional impacts and leads to selection against individual TEs, both of which were supported by our previous genomic study. We further investigated the evolutionary consequences of TE’s epigenetic effects in natural populations using wildtype D. melanogaster strains and the closely related D. simulans. In these wild-derived genomes, we also observe enrichment of heterochromatic marks in sequences adjacent to TEs, suggesting that the epigenetic effects of TEs are a general phenomenon and can have a significant role in the evolutionary dynamics of TEs in natural populations. The vastly different positions of TE insertion sites between the genomes of wildtype strains allowed for unprecedented quantification of the epigenetic effects of TEs. More than half of the TE insertions show enrichment for silencing marks in adjacent sequences. This spreading of silencing marks from TEs can extend up to 20kb (average 4kb) and lead to maximally a 2.5 fold (average 48%) increase in heterochromatic mark enrichment, demonstrating the pervasive epigenetic effects of TEs in host genomes. Importantly, TE families that show more extensive spread of heterochromatic marks have lower population frequencies, which again supports our evolutionary hypothesis. Interestingly, TE families that show significant spread of heterochromatic marks are enriched for TE families displaying recent horizontal transfer between Drosophila species, as well as those targeted by the endo-siRNA pathway. Furthermore, the type of TEs that show the strongest epigenetic effects is different between D. melanogaster (LTR TEs) and D. simulans (TIR TEs), which echoes the well-known differences in the predominant type of TEs in these two host genomes (LTR in D. melanogaster and TIR in D. simulans). We will report on ongoing investigation aimed at identifying the functional causes and evolutionary implications of these observations.