Here we describe a new class of retroelements termed PLE (Penelope-like elements). The only transpositionally active representative of this lineage found so far has been isolated from Drosophila virilis. This element, Penelope, is responsible for the hybrid dysgenesis syndrome in this species, characterized by simultaneous mobilization of several unrelated TE families in the progeny of dysgenic crosses. Several lines of evidence favor the hypothesis of recent Penelope invasion into D. virilis. Moreover, when D. virilisPenelope was introduced by P element-mediated transformation into the genome of D. melanogaster, it underwent extensive amplification in the new host and induced several traits of the dysgenesis syndrome, including gonadal atrophy and numerous mutations. The single ORF encoded by PLE consists of two principal domains: reverse transcriptase (RT) and endonuclease (EN), which is similar to GIY-YIG intron-encoded endonucleases. With the appearance of a large number of PLEs in genome databases from diverse eukaryotes, including amoebae, fungi, cnidarians, rotifers, flatworms, roundworms, fish, amphibia, and reptilia, it becomes possible to resolve their phylogenetic relationships with other RT groups with a greater degree of confidence. On the basis of their peculiar structural features, distinct phylogenetic placement, and structure of transcripts, we conclude that PLE constitute a novel class of eukaryotic retroelements, different from non-LTR and LTR retrotransposons.