Poly(ADP ribose) polymerase 1 (PARP1) is a nuclear protein that regulates chromatin remodeling and transcription as well as DNA repair and genome stability pathways. Recent studies have revealed a paradoxical dual role of PARP1 protein in transcription. Specifically, although PARP1 controls transcriptional activation of a subset of genes that are heat shock- or hormone-dependent, it also directly inactivates transcription, establishes heterochromatin domains, and silences retrotransposable elements. However, the domains required for these disparate functions are currently unknown. In this paper, we report the discovery of a previously undescribed mutation in the Drosophila Parp locus. We show that the mutants express a deletion mutant of PARP1 protein with an altered DNA binding domain that carries only the second Zn-finger. We demonstrate that this alteration specifically excludes PARP1 protein from heterochromatin and makes PARP1 unable to maintain repression of retrotransposable elements. By characterizing the biological activity of this unique PARP1 mutant protein isoform, we have uncoupled the transactivation and transrepression functions of this protein.