In Drosophila, large variations in rearrangement rate have been reported among different lineages and among Muller's elements. Nevertheless, the mechanisms that are involved in the generation of inversions, their increase in frequency, as well as their impact on the genome are not completely understood. This is in part due to the lack of comparative studies on species distantly related to Drosophila melanogaster. Therefore, we sequenced and assembled the genomes of two species of the virilis phylad (Drosophila novamexicana [15010-1031.00] and Drosophila americana [SF12]), which are diverging from D. melanogaster for more than 40 Myr. Based on these data, we identified the precise location of six novel inversion breakpoints. A molecular characterization provided clear evidence that DAIBAM (a miniature inverted-repeat transposable element) was involved in the generation of eight out of the nine inversions identified. In contrast to what has been previously reported for D. melanogaster and close relatives, ectopic recombination is thus the prevalent mechanism of generating inversions in species of the virilis phylad. Using pool-sequencing data for three populations of D. americana, we also show that common polymorphic inversions create a high degree of genetic differentiation between populations for chromosomes X, 4, and 5 over large physical distances. We did not find statistically significant differences in expression levels between D. americana (SF12) and D. novamexicana (15010-1031.00) strains for the three genes surveyed (CG9588, Fig 4, and fab1) flanking three inversion breakpoints.