TnpB nucleases represent the evolutionary precursors to CRISPR-Cas12 and are widespread in all domains of life, presumably due to the critical roles they play in transposon proliferation. IS605family TnpB homologs function in bacteria as programmable homing endonucleases by exploiting transposon-encoded guide RNAs to cleave vacant genomic sites, thereby driving transposon maintenance through DSB-stimulated homologous recombination. Whether this pathway is conserved in other genetic contexts, and in association with other transposases, is unknown. Here we uncover molecular mechanisms of transposition and RNA-guided DNA cleavage by IS607-family elements that, remarkably, also encode catalytic, self-splicing group I introns. After reconstituting and systematically investigating each of these biochemical activities for a candidate 'IStron' derived from Clostridium botulinum, we discovered sequence and structural features of the transposon-encoded RNA that satisfy molecular requirements of a group I intron and TnpB guide RNA, while still retaining the ability to be faithfully mobilized at the DNA level by the TnpA transposase. Strikingly, intron splicing was strongly repressed not only by TnpB, but also by the secondary structure of ωRNA alone, allowing the element to carefully control the relative levels of spliced products versus functional guide RNAs. Our results suggest that IStron transcripts have evolved a sensitive equilibrium to balance competing and mutually exclusive activities that promote transposon maintenance while limiting adverse fitness costs on the host. Collectively, this work explains how diverse enzymatic activities emerged during the selfish spread of IS607-family elements and highlights molecular innovation in the multi-functional utility of transposon-encoded noncoding RNAs.