Ty1, the genetically tractable retrotransposable element found in the yeast Saccharomyces cerevisiae, closely resembles vertebrate retroviruses both in structure and in mechanism of replication. By direct sequence analysis, we examined the rate and spectrum of new mutations appearing during a single cycle of Ty1 replication. The rate of new mutations was comparable to those seen for replicating retroviruses. All observed changes were base substitutions, and their location suggested that template ends may be hot spots for generating these mutations. To test this, we developed methods to examine, at the nucleotide level, the end structure of the expected Ty1 replication intermediates. Our results demonstrate that Ty1 reverse transcriptase can add terminal non-templated bases in vivo during each step in replication. Furthermore, Ty1 RNAse H creates multiple template ends by imprecisely cleaving RNA. This expands the range of sites of subsequent non-templated base addition. Finally, on reaching template ends, Ty1 reverse transcriptase can strand transfer to inappropriate templates. Taken together, these mutagenic mechanisms may influence the evolution of particular regions of the Ty1 genome and serve as a mechanism to regulate the overall level of Ty1 transposition in its host cell.