The Trypanosoma brucei genome is colonized by the site-specific non-LTR retrotransposon SLACS, or spliced leader-associated conserved sequence, which integrates exclusively into the spliced leader (SL) RNA genes. Although there is evidence that the RNA interference (RNAi) machinery regulates SLACS transcript levels, we do not know whether RNAi deficiency affects the genomic stability of SLACS, nor do we understand the mechanism of SLACS transcription. Here, we report that prolonged culturing of RNAi-deficient T. brucei cells, but not wild-type cells, results in genomic rearrangements of SLACS. Furthermore, two populations of SLACS transcripts persist in RNAi-deficient cells: a full-length transcript of approximately 7 kb and a heterogeneous population of small SLACS transcripts ranging in size from 450 to 550 nt. We provide evidence that SLACS transcription initiates at the +1 of the interrupted SL RNA gene and proceeds into the 5' UTR and open reading frame 1 (ORF1). This transcription is carried out by an RNA polymerase with alpha-amanitin sensitivity reminiscent of SL RNA synthesis and is dependent on the SL RNA promoter. Additionally, we show that both sense and antisense small SLACS transcripts originate from ORF1 and that they are associated with proteins in vivo. We speculate that the small SLACS transcripts serve as substrates for the production of siRNAs to regulate SLACS expression.