Genomes of higher eukaryotes, including plants, contain numerous transposable elements (TEs), that are often silenced by epigenetic mechanisms, such as histone modifications and DNA methylation. Although TE silencing adversely affects expression of nearby genes, recent studies reveal the presence of intragenic TEs marked by repressive heterochromatic epigenetic marks within transcribed genes. However, even for the well-studied plant model Arabidopsis thaliana, the abundance of intragenic TEs, how they are epigenetically regulated, and their potential impacts on host gene expression, remain unexplored. In this study, we comprehensively analyzed genome-wide distribution and epigenetic regulation of intragenic TEs in A. thaliana. Our analysis revealed that about 3% of TEs are located within gene bodies, dominantly at intronic regions. Most of them are shorter and less methylated than intergenic TEs, but they are still targeted by RNA-directed DNA methylation-dependent and independent pathways. Surprisingly, the heterochromatic epigenetic marks at TEs are maintained within actively transcribed genes. Moreover, the heterochromatic state of intronic TEs is critical for proper transcription of associated genes. Our study provides the first insight into how intragenic TEs affect the transcriptional landscape of the A. thaliana genome, and suggests the importance of epigenetic mechanisms for regulation of TEs within transcriptional gene units.