Insulators are genomic elements that regulate transcriptional activity by forming chromatin boundaries. Various DNA insulators have been identified or are postulated in many organisms, and the paradigmatic CTCF-dependent insulators are perhaps the best understood and most widespread in function. The diversity of DNA insulators is, however, understudied, especially in the context of embryonic development, when many new gene territories undergo transitions in functionality. Here we report the functional analysis of the arylsulfatase insulator (ArsI) derived from the sea urchin, which has conserved insulator activity throughout the many metazoans tested, but for which the molecular mechanism of function is unknown. Using a rapid in vivo assay system and a high-throughput mega-shift assay, we identified a minimal region in ArsI that is responsible for its insulator function. We discovered a small set of proteins specifically bound to the minimal ArsI region, including ISWI, a known chromatin-remodeling protein. During embryogenesis, ISWI was found to interact with select ArsI sites throughout the genome, and when inactivated led to misregulation of select gene expression, loss of insulator activity and aberrant morphogenesis. These studies reveal a mechanistic basis for ArsI function in the gene regulatory network of early development.