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Stalk-eyed flies in the genus Teleopsis carry selfish genetic elements that induce sex ratio (SR) meiotic drive and impact the fitness of male and female carriers. Here, we assemble and describe a chromosome-level genome assembly of the stalk-eyed fly, Teleopsis dalmanni, to elucidate patterns of divergence associated with SR. The genome contains tens of thousands of transposable element (TE) insertions and hundreds of transcriptionally and insertionally active TE families. By resequencing pools of SR and ST males using short and long reads, we find widespread differentiation and divergence between XSR and XST associated with multiple nested inversions involving most of the SR haplotype. Examination of genomic coverage and gene expression data revealed seven X-linked genes with elevated expression and coverage in SR males. The most extreme and likely drive candidate involves an XSR-specific expansion of an array of partial copies of JASPer, a gene necessary for maintenance of euchromatin and associated with regulation of TE expression. In addition, we find evidence for rapid protein evolution between XSR and XST for testis expressed and novel genes, that is, either recent duplicates or lacking a Dipteran ortholog, including an X-linked duplicate of maelstrom, which is also involved in TE silencing. Overall, the evidence suggests that this ancient XSR polymorphism has had a variety of impacts on repetitive DNA and its regulation in this species.