Biomolecular studies point increasingly to the importance of modularity in the organization of the genome. Processes such as the maintenance of metabolism are controlled by suites of genes that act as distinct, self-contained units, or modules. One effect is to promote stability of inherited characters. Despite the obvious importance of genetic modules, the mechanisms by which they form and persist are not understood. One clue is that functionally related genes tend to cluster together. Here we show that genetic translocation, recombination, and natural selection play a central role in this process. We distill the question of emerging genetic modularity into three simulation experiments that show: (1) a tendency, under natural selection, for essential genes to co-locate on the same chromosome and to settle in fixed loci; (2) that genes associated with a particular function tend to form functional clusters; and (3) that genes within a functional cluster tend to become arranged in transcription order. The results also imply that high proportions of junk DNA are essential to the process.