To date, the vast majority of known virus-encoded microRNAs (miRNAs) are derived from polymerase II transcripts encoded by DNA viruses. A recent demonstration that the bovine leukemia virus, a retrovirus, uses RNA polymerase III to directly transcribe the pre-miRNA hairpins to generate viral miRNAs further supports the common notion that the canonical pathway of miRNA biogenesis does not exist commonly among RNA viruses. Here, we show that an exogenous virus-specific region, termed the E element or XSR, of avian leukosis virus subgroup J (ALV-J), a member of avian retrovirus, encodes a novel miRNA, designated E (XSR) miRNA, using the canonical miRNA biogenesis pathway. Detection of novel microRNA species derived from the E (XSR) element, a 148-nucleotide noncoding RNA with hairpin structure, showed that the E (XSR) element has the potential to function as a microRNA primary transcript, demonstrating a hitherto unknown function with possible roles in myeloid leukosis associated with ALV-J.