The unintended consequences of gene targeting in mouse models have not been thoroughly studied and a more systematic analysis is needed to understand the frequency and characteristics of off-target effects. Using RNA-seq, we evaluated targeted and neighboring gene expression in tissues from 44 homozygous mutants compared with C57BL/6N control mice. Two allele types were evaluated: 15 targeted trap mutations (TRAP); and 29 deletion alleles (DEL), usually a deletion between the translational start and the 3' UTR. Both targeting strategies insert a bacterial beta-galactosidase reporter (LacZ) and a neomycin resistance selection cassette. Evaluating transcription of genes in +/- 500 kb of flanking DNA around the targeted gene, we found up-regulated genes more frequently around DEL compared with TRAP alleles, however the frequency of alleles with local down-regulated genes flanking DEL and TRAP targets was similar. Down-regulated genes around both DEL and TRAP targets were found at a higher frequency than expected from a genome-wide survey. However, only around DEL targets were up-regulated genes found with a significantly higher frequency compared with genome-wide sampling. Transcriptome analysis confirms targeting in 97% of DEL alleles, but in only 47% of TRAP alleles probably due to non-functional splice variants, and some splicing around the gene trap. Local effects on gene expression are likely due to a number of factors including compensatory regulation, loss or disruption of intragenic regulatory elements, the exogenous promoter in the neo selection cassette, removal of insulating DNA in the DEL mutants, and local silencing due to disruption of normal chromatin organization or presence of exogenous DNA. An understanding of local position effects is important for understanding and interpreting any phenotype attributed to targeted gene mutations, or to spontaneous indels.