The transcript of retrovirus-like transposons functions as an mRNA for synthesis of capsid and replication proteins and as the genomic RNA of virus-like particles (VLPs), wherein the genome is replicated. Retrotransposon RNA and proteins coalesce in a cytoplasmic focus, or retrosome, to initiate VLP assembly, but it is not known how the retrosome is nucleated. We determined how the RNA and Gag protein of the Saccharomyces cerevisiae Ty1 retrotransposon are directed to the retrosome. We found that Ty1 RNA is translated in association with signal recognition particle (SRP), a universally conserved chaperone that binds specific ribosome-nascent chain (RNC) complexes and targets the nascent peptide to the endoplasmic reticulum (ER). Gag is translocated to the ER lumen; yet, it is also found in the cytoplasm, associated with SRP-RNC complexes. In the absence of ER translocation, Gag is synthesized but rapidly degraded, and Ty1 RNA does not coalesce in retrosomes. These findings suggest that Gag adopts a stable conformation in the ER lumen, is retrotranslocated to the cytoplasm, binds to Ty1 RNA on SRP-RNC complexes and multimerizes to nucleate retrosomes. Consistent with this model, we show that slowing the rate of co-translational ER translocation by limiting SRP increases the prevalence of retrosomes, while suppressing the translocation defect of srp hypomorphs by slowing translational elongation rapidly decreases retrosome formation. Thus, retrosomes are dynamic foci of Ty1 RNA-RNC complexes whose formation is modulated by the rate of co-translational ER translocation. Together, these findings suggest that translating Ty1 mRNA and the genomic RNA of VLPs originate in a single pool and moreover, that co-translational localization of Ty1 RNA nucleates the presumptive VLP assembly site. The separation of nascent Gag from its RNA template by transit through the ER allows Gag to bind translating Ty1 RNA without displaying a cis-preference for its encoding RNA.