The neuronal gene Arc is essential for long-lasting information storage in the mammalian brain, mediates various forms of synaptic plasticity, and has been implicated in neurodevelopmental disorders. However, little is known about Arc's molecular function and evolutionary origins. Here, we show that Arc self-assembles into virus-like capsids that encapsulate RNA. Endogenous Arc protein is released from neurons in extracellular vesicles that mediate the transfer of Arc mRNA into new target cells, where it can undergo activity-dependent translation. Purified Arc capsids are endocytosed and are able to transfer Arc mRNA into the cytoplasm of neurons. These results show that Arc exhibits similar molecular properties to retroviral Gag proteins. Evolutionary analysis indicates that Arc is derived from a vertebrate lineage of Ty3/gypsy retrotransposons, which are also ancestors to retroviruses. These findings suggest that Gag retroelements have been repurposed during evolution to mediate intercellular communication in the nervous system.