The karyotype of most birds has remained considerably stable during more than 100 million years evolution, except for some groups, such as parrots. The evolutionary processes and underlying genetic mechanism of chromosomal rearrangements in parrots, however, are poorly understood. Here, using chromosome-level assemblies of three parrot genomes (monk parakeet, blue-fronted amazon, budgerigar), we uncovered frequent chromosome fusions and fissions among parrots, with most of them being lineage-specific. In particular, at least 12 chromosomes recurrently experienced inter-chromosomal fusions in different parrot lineages. Two conserved vertebrate genes, ALC1 and PARP3, with known functions in the repair of double-strand breaks and maintenance of genome stability, were specifically lost in parrots. The loss of ALC1 was associated with multiple deletions and an accumulation of CR1-psi, a novel subfamily of transposable elements (TEs) that recently amplified in parrots, while the loss of PARP3 was associated with an inversion. Additionally, the fusion of the ZW sex chromosomes and chromosome 11 has created a pair of neo-sex chromosomes in the ancestor of parrots, and the chromosome 25 has been further added to the sex chromosomes in monk parakeet. The newly formed neo-sex chromosomes were validated by our chromosomal painting, genomic and phylogenetic analyses. Transcriptome profiling for multiple tissues of males and females did not reveal signals of female-specific selection driving the formation of neo-sex chromosomes. Finally, we identified one W-specific satellite repeat that contributed to the unusual enlargement of the W chromosome in monk parakeet. Together, the combination of our genomic and cytogenetic analyses highlight the role of TEs and genetic drift in promoting chromosome rearrangements, gene loss and the evolution of neo-sex chromosome in parrots.