Transposable elements (TEs) are accumulated in both intergenic and intragenic regions in plant genomes. Intragenic TEs often act as regulatory elements of associated genes, and are also co-transcribed with genes, generating chimeric TE-gene transcripts. Despite its potential impacts on mRNA regulation and gene function, the prevalence and transcriptional regulation of TE-gene transcripts remain elusive. By the long-read Direct RNA Sequencing (DRS) and a dedicated bioinformatic pipeline ParasiTE, we investigated transcription and RNA processing of TE-gene transcripts in Arabidopsis thaliana. We identified that thousands of Arabidopsis gene loci generate TE-gene transcripts, where in many loci TEs are associated with alternative Transcription Start Sites (ATSS) or Transcription Termination Sites (ATTS). Epigenetic state of intragenic TE affects PolII elongation and usage of alternative polyA signals in TE sequences, regulating alternative TE-gene isoform production. Co-transcription and inclusion of TE-derived sequence into gene transcripts impacts regulation of RNA stability and environmental responses in some loci. Our study provides novel insights into TE-gene interaction that contributes to mRNA regulation and transcriptome diversity in plants.