Polycomb and Trithorax group proteins encode the epigenetic memory of cellular positional identity by establishing inheritable domains of repressive and active chromatin within the Hox clusters. Here we demonstrate that the CCCTC-binding factor (CTCF) functions to insulate these adjacent yet antagonistic chromatin domains during embryonic stem cell differentiation into cervical motor neurons. Deletion of CTCF binding sites within the Hox clusters results in the expansion of active chromatin into the repressive domain. CTCF functions as an insulator by organizing Hox clusters into spatially disjoint domains. Ablation of CTCF binding disrupts topological boundaries such that caudal Hox genes leave the repressed domain and become subject to transcriptional activation. Hence, CTCF is required to insulate facultative heterochromatin from impinging euchromatin to produce discrete positional identities.