Tetraodon nigroviridis is among the smallest known vertebrate genomes and as such represents an interesting model for studying genome architecture and evolution. Previous studies have shown that Tetraodon contains several types of tandem and dispersed repeats, but that their overall contribution is >10% of the genome. Using genomic library hybridization, fluorescent in situ hybridization, and whole genome shotgun and directed sequencing, we have investigated the global and local organization of repeat sequences in Tetraodon. We show that both tandem and dispersed repeat elements are compartmentalized in specific regions that correspond to the short arms of small subtelocentric chromosomes. The concentration of repeats in these heterochromatic regions is in sharp contrast to their paucity in euchromatin. In addition, we have identified a number of pseudogenes that have arisen through either duplication of genes or the retro-transcription of mRNAs. These pseudogenes are amplified to high numbers, some with more than 200 copies, and remain almost exclusively located in the same heterochromatic regions as transposable elements. The sequencing of one such heterochromatic region reveals a complex pattern of duplications and inversions, reminiscent of active and frequent rearrangements that can result in the truncation and hence inactivation of transposable elements. This tight compartmentalization of repeats and pseudogenes is absent in large vertebrate genomes such as mammals and is reminiscent of genomes that remain compact during evolution such as Drosophila and Arabidopsis.