Heterochromatin plays essential roles in repressing retrotransposons, e.g. endogenous retroviruses (ERVs) during mammalian development, but the contribution of retrotransposition to lethality observed in embryonic cells deficient for heterochromatin-mediated ERV repression is poorly understood. Here we report that selective degradation of the TRIM28 heterochromatin adapter protein leads to reduced association of transcriptional condensates with loci encoding super-enhancer -driven pluripotency genes in embryonic stem cells, a collapse of the pluripotency transcriptional circuit, and a pre-lethal restriction of pluripotent lineages in mouse embryos. De-repressed ERVs recruit transcriptional condensates in the absence of TRIM28, and ERV RNA facilitates condensation of RNA Polymerase II in vitro. We propose that retrotransposons contribute to the genomic distribution of nuclear condensates, and that RNA species may facilitate “hijacking” of transcriptional condensates in various developmental and disease contexts.