Retroviruses produced from the quail packaging cell line SE21Q1b predominantly contain cellular RNAs instead of viral RNAs. These RNAs can be reverse transcribed and integrated into the genomes of newly infected cells and are thereafter referred to as newly formed retrogenes. We investigated whether retrogene formation can occur within SE21Q1b cells themselves and whether this occurs intracellularly or via extracellular reinfection. By using packaging cell line mutants derived from the SE21Q1b provirus and selectable reporter constructs, we found that the process requires envelope glycoproteins and a retroviral packaging signal. Our results suggest that extracellular reinfection is the primary route of retrotransposition of nonviral RNAs.