TET/JBP dioxygenases oxidize methylpyrimidines in nucleic acids and are implicated in generation of epigenetic marks and potential intermediates for DNA demethylation. We show that TET/JBP genes are lineage-specifically expanded in all major clades of basidiomycete fungi, with the majority of copies predicted to encode catalytically active proteins. This pattern differs starkly from the situation in most other organisms that possess just a single or a few copies of the TET/JBP family. In most basidiomycetes, TET/JBP genes are frequently linked to a unique class of transposons, KDZ (Kyakuja, Dileera, and Zisupton) and appear to have dispersed across chromosomes along with them. Several of these elements typically encode additional proteins, including a divergent version of the HMG domain. Analysis of their transposases shows that they contain a previously uncharacterized version of the RNase H fold with multiple distinctive Zn-chelating motifs and a unique insert, which are predicted to play roles in structural stabilization and target sequence recognition, respectively. We reconstruct the complex evolutionary history of TET/JBPs and associated transposons as involving multiple rounds of expansion with concomitant lineage sorting and loss, along with several capture events of TET/JBP genes by different transposon clades. On a few occasions, these TET/JBP genes were also laterally transferred to certain Ascomycota, Glomeromycota, Viridiplantae, and Amoebozoa. One such is an inactive version, calnexin-independence factor 1 (Cif1), from Schizosaccharomyces pombe, which has been implicated in inducing an epigenetically transmitted prion state. We argue that this unique transposon-TET/JBP association is likely to play important roles in speciation during evolution and epigenetic regulation. 