Although liganded nuclear receptors have been established to regulate RNA polymerase II (Pol II)-dependent transcription units, their role in regulating Pol III-transcribed DNA repeats remains largely unknown. Here we report that ~2-3% of the ~100,000-200,000 total human DR2 Alu repeats located in proximity to activated Pol II transcription units are activated by the retinoic acid receptor (RAR) in human embryonic stem cells to generate Pol III-dependent RNAs. These transcripts are processed, initially in a DICER-dependent fashion, into small RNAs (~28-65 nt) referred to as repeat-induced RNAs that cause the degradation of a subset of crucial stem-cell mRNAs, including Nanog mRNA, which modulate exit from the proliferative stem-cell state. This regulation requires AGO3-dependent accumulation of processed DR2 Alu transcripts and the subsequent recruitment of AGO3-associated decapping complexes to the target mRNA. In this way, the RAR-dependent and Pol III-dependent DR2 Alu transcriptional events in stem cells functionally complement the Pol II-dependent neuronal transcriptional program.