To study the evolutionary relationship of reverse transcriptase (RT) containing genetic elements, a phylogenetic tree of 82 retroelements from animals, plants, protozoans and bacteria was constructed. The tree was based on seven amino acid domains totalling 178 residues identified in all RTs. We have also identified these seven domains in the RNA-directed RNA polymerases from various plus-strand RNA viruses. The sequence similarity of these RNA polymerases to RT suggests that these two enzymes evolved from a common ancestor, and thus RNA polymerase can be used as an outgroup to root the RT tree. A comparison of the genetic organization of the various RT containing elements and their position on the tree allows several inferences concerning the origin and evolution of these elements. The most probable ancestor of current retroelements was a retrotransposable element with both gag-like and pol-like genes. On one major branch of the tree, organelle and bacterial sequences (e.g. group II introns and bacterial msDNA) appear to have captured the RT sequences from retrotransposons which lack long terminal repeats (LTRs). On the other major branch, acquisition of LTRs gave rise to two distinct groups of LTR retrotransposons and three groups of viruses: retroviruses, hepadnaviruses and caulimoviruses.