The basidiomycete smut fungus Ustilago hordei was previously shown to comprise isolates that are avirulent on various barley host cultivars. Through genetic crosses we had revealed that a dominant avirulence locus UhAvr1 which triggers immunity in barley cultivar Hannchen harboring resistance gene Ruh1, resided within an 80-kb region. DNA sequence analysis of this genetically delimited region uncovered the presence of 7 candidate secreted effector proteins. Sequence comparison of their coding sequences among virulent and avirulent parental and field isolates could not distinguish UhAvr1 candidates. Systematic deletion and complementation analyses revealed that UhAvr1 is UHOR_10022 which codes for a small effector protein of 171 amino acids with a predicted 19 amino acid signal peptide. Virulence in the parental isolate is caused by the insertion of a fragment of 5.5 kb with similarity to a common U. hordei transposable element (TE), interrupting the promoter of UhAvr1 and thereby changing expression and hence recognition of UhAVR1p. This rearrangement is likely caused by activities of TEs and variation is seen among isolates. Using GFP-chimeric constructs we show that UhAvr1 is induced only in mated dikaryotic hyphae upon sensing and infecting barley coleoptile cells. When infecting Hannchen, UhAVR1p causes local callose deposition and the production of reactive oxygen species and necrosis indicative of the immune response. UhAvr1 does not contribute significantly to overall virulence. UhAvr1 is located in a cluster of ten effectors with several paralogs and over 50% of TEs. This cluster is syntenous with clusters in closely-related U. maydis and Sporisorium reilianum. In these corn-infecting species, these clusters harbor however more and further diversified homologous effector families but very few TEs. This increased variability may have resulted from past selection pressure by resistance genes since U. maydis is not known to trigger immunity in its corn host.