The expansion of CGG repeats in the 5'-untranslated region (5'UTR) of FMR1 gene is the molecular basis of fragile X syndrome in most of the patients. The nature of the flanking sequences in addition to the length and interruption pattern of repeats is predicted to influence CGG repeat instability in the FMR1 gene. We investigated nucleosome occupancy as a contributor to CGG repeat instability in a transgenic mouse model containing unstable (CGG)(26,) from human FMR1 cloned downstream of nucleosome-excluding sequence. We observe that the transgene has an open chromatin structure compared to the stable endogenous mouse Fmr1 within the same nucleus. CGG repeats in mouse Fmr1 are flanked by nucleosomes unlike the repeats in the transgene in all the tissues examined. Further in vitro chromatin reconstitution experiments show that DNA fragment without the SV40ori/EPR (nucleosome-excluding sequence) forms more stable chromatin than the one containing it, despite having the same number of CGG repeats. The correlation between nucleosomal organisation of the FMR1 gene and CGG repeat instability was supported by significantly lower frequency of repeat expansion in mice containing an identical transgene without the SV40ori/EPR. Our studies demonstrate that flanking DNA sequences can influence repeat instability through modulation of nucleosome occupancy in the region.