Although homologous recombination between transposable elements can drive genomic evolution in yeast by facilitating chromosomal rearrangements, the details of the underlying mechanisms are not fully clarified. In the genome of the yeast Saccharomyces cerevisiae, the most common class of transposon is the retrotransposon Ty1. Here, we explored how Cas9-induced double-strand breaks (DSBs) directed to Ty1 elements produce genomic alterations in this yeast species. Following Cas9 induction, we observed a significant elevation of chromosome rearrangements such as deletions, duplications and translocations. In addition, we found elevated rates of mitotic recombination, resulting in loss of heterozygosity. Using Southern analysis coupled with short- and long-read DNA sequencing, we revealed important features of recombination induced in retrotransposons. Almost all of the chromosomal rearrangements reflect the repair of DSBs at Ty1 elements by non-allelic homologous recombination; clustered Ty elements were hotspots for chromosome rearrangements. In contrast, a large proportion (about three-fourths) of the allelic mitotic recombination events have breakpoints in unique sequences. Our analysis suggests that some of the latter events reflect extensive processing of the broken ends produced in the Ty element that extend into unique sequences resulting in break-induced replication. Finally, we found that haploid and diploid strain have different preferences for the pathways used to repair double-stranded DNA breaks. Our findings demonstrate the importance of DNA lesions in retrotransposons in driving genome evolution.