Most eukaryotic centromeres contain large quantities of repetitive DNA, such as satellite repeats and retrotransposons. Unlike most transposons in plant genomes, the centromeric retrotransposon (CR) family is conserved over long evolutionary periods among a majority of the grass species. CR elements are highly concentrated in centromeres, and are likely to play a role in centromere function. In order to study centromere evolution in the Oryza (rice) genus, we sequenced the orthologous region to centromere 8 of Oryza sativa from a related species, Oryza brachyantha. We found that O. brachyantha does not have the canonical CRR (CR of rice) found in the centromeres of all other Oryza species. Instead, a new Ty3-gypsy (Metaviridae) retroelement (FRetro3) was found to colonize the centromeres of this species. This retroelement is found in high copy numbers in the O. brachyantha genome, but not in other Oryza genomes, and based on the dating of long terminal repeats (LTRs) of FRetro3 it was amplified in the genome in the last few million years. Interestingly, there is a high level of removal of FRetro3 based on solo-LTRs to full-length elements, and this rapid turnover may have played a role in the replacement of the canonical CRR with the new element by active deletion. Comparison with previously described ChIP cloning data revealed that FRetro3 is found in CENH3-associated chromatin sequences. Thus, within a single lineage of the Oryza genus, the canonical component of grass centromeres has been replaced with a new retrotransposon that has all the hallmarks of a centromeric retroelement.