Thirty-three percent (228/682) of all long terminal repeat (LTR) retrotransposon sequences (LRSs) present in the sequenced Drosophila melanogaster genome were found to be located in or within 1000 bp of a gene. Recently inserted LTR retrotransposons are significantly more likely to be located in or within genes than are older, fragmented LTR retrotransposon sequences, indicating that most LRS-gene associations are selected against over evolutionary time. LRSs associated with conserved genes (homologenes) are especially prone to negative selection. In contrast, fragmented LRSs that have persisted in the genome over long spans of evolutionary time are preferentially associated with genes involved in signal transduction and other newly evolved functions.