Organization of the genome into euchromatin and heterochromatin appears to be evolutionarily conserved and relatively stable during lineage differentiation. In an effort to unravel the basic principle underlying genome folding, here we focus on the genome itself and report a fundamental role for L1 (LINE1 or LINE-1) and B1/Alu retrotransposons, the most abundant subclasses of repetitive sequences, in chromatin compartmentalization. We find that homotypic clustering of L1 and B1/Alu demarcates the genome into grossly exclusive domains, and characterizes and predicts Hi-C compartments. Spatial segregation of L1-rich sequences in the nuclear and nucleolar peripheries and B1/Alu-rich sequences in the nuclear interior is conserved in mouse and human cells and occurs dynamically during the cell cycle. In addition, de novo establishment of L1 and B1 nuclear segregation is coincident with the formation of higher-order chromatin structures during early embryogenesis and appears to be critically regulated by L1 and B1 transcripts. Importantly, depletion of L1 transcripts in embryonic stem cells drastically weakens homotypic repeat contacts and compartmental strength, and disrupts the nuclear segregation of L1- or B1-rich chromosomal sequences at genome-wide and individual sites. Mechanistically, nuclear co-localization and liquid droplet formation of L1 repeat DNA and RNA with heterochromatin protein HP1α suggest a phase-separation mechanism by which L1 promotes heterochromatin compartmentalization. Taken together, we propose a genetically encoded model in which L1 and B1/Alu repeats blueprint chromatin macrostructure. Our model explains the robustness of genome folding into a common conserved core, on which dynamic gene regulation is overlaid across cells.