Identification of unconventional functional features such as fusion transcripts is a challenging task in the effort to annotate all functional DNA elements in the human genome. Paired-End diTag (PET) analysis possesses a unique capability to accurately and efficiently characterize the two ends of DNA fragments, which may have either normal or unusual compositions. This unique nature of PET analysis makes it an ideal tool for uncovering unconventional features residing in the human genome. Using the PET approach for comprehensive transcriptome analysis, we were able to identify fusion transcripts derived from genome rearrangements and actively expressed retrotransposed pseudogenes, which would be difficult to capture by other means. Here, we demonstrate this unique capability through the analysis of 865,000 individual transcripts in two types of cancer cells. In addition to the characterization of a large number of differentially expressed alternative 5' and 3' transcript variants and novel transcriptional units, we identified 70 fusion transcript candidates in this study. One was validated as the product of a fusion gene between BCAS4 and BCAS3 resulting from an amplification followed by a translocation event between the two loci, chr20q13 and chr17q23. Through an examination of PETs that mapped to multiple genomic locations, we identified 4055 retrotransposed loci in the human genome, of which at least three were found to be transcriptionally active. The PET mapping strategy presented here promises to be a useful tool in annotating the human genome, especially aberrations in human cancer genomes.