Retrotransposable elements have played an important role in shaping eukaryotic DNA, and their activity and turnover rate directly influence the size of genomes. With approximately 15,000 genes within 65-75 megabases, the marine tunicate Oikopleura dioica, a nonvertebrate chordate, has the smallest and most compact genome ever found in animals. Consistent with a massive elimination of retroelements, only one apparently novel clade of non-long terminal repeat (non-LTR) retrotransposons was detected within 41 megabases of nonredundant genomic sequences. In contrast, at least six clades of non-LTR elements were identified in the less compact genome of the tunicate Ciona intestinalis. Unexpectedly, Ty3/gypsy-related Tor LTR retrotransposons presented an astonishing level of diversity in O. dioica. They were generally poorly or apparently not corrupted, indicating recent activity. Both Tor3 and Tor4b families bore an envelope-like open reading frame, suggesting possible horizontal acquisition through infection. The Tor4b envelope-like gene might have been obtained from a paramyxovirus (RNA virus). Tor3 and Tor4b are phylogenetically clearly distinct from vertebrate retroviruses (Retroviridae) and are more reminiscent of certain insect and plant sequences. Tor elements potentially represent a so far unknown, ancient type of infectious retroelement in chordates. Their distribution and transmission dynamics in tunicates and other chordates deserve further study.