The transcriptional framework of the eukaryotic centromere core has been described in budding yeast and rice, but for most eukaryotes and all vertebrates it remains largely unknown. The lack of large pericentric repeats in the tammar wallaby has made it possible to map and identify the transcriptional units at the centromere in a mammalian species for the first time. We show that these transcriptional units, comprised of satellites and a retrovirus, are bound by centromere proteins and that they are the source of a novel class of small RNA. The endogenous retrovirus from which these small RNAs are derived is now known to be in the centromere domain of several vertebrate classes. The discovery of this new RNA form brings together several independent lines of evidence that point to a conserved retroviral-encoded processed RNA entity within eukaryotic centromeres.