Genes with novel cellular functions may evolve through exon shuffling, which can assemble novel protein architectures. Here, we show that DNA transposons provide a recurrent supply of materials to assemble protein-coding genes through exon shuffling. We find that transposase domains have been captured-primarily via alternative splicing-to form fusion proteins at least 94 times independently over the course of similar to 350 million years of tetrapod evolution. We find an excess of transposase DNA binding domains fused to host regulatory domains, especially the Kruppel-associated box (KRAB) domain, and identify four independently evolved KRAB-transposase fusion proteins repressing gene expression in a sequence-specific fashion. The bat-specific KRABINER fusion protein binds its cognate transposons genome-wide and controls a network of genes and cis-regulatory elements. These results illustrate how a transcription factor and its binding sites can emerge.