Retrosequences generated by reverse transcription of mRNA transcripts have a substantial influence on gene expression patterns, generation of novel gene functions, and genome organization. The Ty1 retrotransposon is a major source of RT activity in the yeast, Saccharomyces cerevisiae, and Ty1 retromobility is greatly elevated in strains lacking telomerase. We report that Ty1-dependent formation of retrosequences derived from single-copy gene transcripts is progressively elevated as yeast cells senesce in the absence of telomerase. Retrosequences are frequently fused to Ty1 sequences, and occasionally to sequences from other mRNA transcripts, forming chimeric pseudogenes. Efficient retrosequence formation requires the homologous recombination gene RAD52. Selection for retrosequence formation is correlated with a high frequency of chromosome rearrangements in telomerase-negative yeast. Ty1-associated retrosequences were present at the breakpoint junctions of four chromosomes analyzed in detail. Our results support a role for reverse transcripts in promoting chromosome rearrangements.