Transposable elements (TEs) in the human genome are the heritage of ancient parasitic infections. While most of human DNA comprises TEs and TE-derived elements, their repetitive nature poses technical challenges; thus, little is known about their positional identity and regulatory roles. Here, by integrating long-read and multidimensional transcriptional analyses, we investigate when, where and how TEs become part of a gene. We characterize how TE-derived isoforms change across mouse-human variation and how they are linked to gene regulatory networks controlling cell states during differentiation, organogenesis and health (aging and pathological states). Mechanistically, we identify an RNA degradation-dependent and splicing-dependent quality control mechanism that operates independently of conventional mechanisms of TE suppression, such as DNA methylation and heterochromatinization, and prevents TE-chimera expression and TE-induced cell differentiation. Overall, our findings unveil mechanisms by which viral-derived elements enhance transcriptome plasticity.