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Background  Fungal plant pathogens pose major threats to crop yield and sustainable food production if they are highly adapted to their host and the local environment. Variation in gene expression contributes to phenotypic diversity within fungal species and affects adaptation. However, very few cases of adaptive regulatory changes have been reported in fungi and the underlying mechanisms remain largely unexplored. Fungal pathogen genomes are highly plastic and harbor numerous insertions of transposable elements, which can potentially contribute to gene expression regulation. In this work, we elucidated how transposable elements contribute to variation in melanin accumulation, a quantitative trait in fungi that affects survival under stressful conditions.    Results  We demonstrated that differential transcriptional regulation of the gene encoding the transcription factor Zmr1, which controls expression of the genes in the melanin biosynthetic gene cluster, is responsible for variation in melanin accumulation in the fungal plant pathogen  Zymoseptoria tritici . We show that differences in melanin levels between two strains of  Z .  tritici  are due to two levels of transcriptional regulation: (1) variation in the promoter sequence of  Zmr1  and (2) an insertion of transposable elements upstream of the  Zmr1  promoter. Remarkably, independent insertions of transposable elements upstream of  Zmr1  occurred in 9% of  Z .  tritici  strains from around the world and negatively regulated  Zmr1  expression, contributing to variation in melanin accumulation.    Conclusions  Our studies identified two levels of transcriptional control that regulate the synthesis of melanin. We propose that these regulatory mechanisms evolved to balance the fitness costs associated with melanin production against its positive contribution to survival in stressful environments.    Electronic supplementary material  The online version of this article (10.1186/s12915-018-0543-2) contains supplementary material, which is available to authorized users.

Transposable element insertions shape gene regulation and melanin production in a fungal pathogen of wheat