Compared to sites in protein-coding sequences many more targets undergoing adenosine to inosine (A-to-I) RNA editing were discovered in non-coding regions of human cerebral transcripts, particularly in genetic transposable elements called retrotransposons. We review here the interaction mechanisms of RNA editing and retrotransposons and their impact on normal function and human neurological diseases. Exemplarily, A-to-I editing of retrotransposons embedded in protein-coding mRNAs can contribute to protein abundance and function via circular RNA formation, alternative splicing, and exonization or silencing of retrotransposons. Interactions leading to disease are not very well understood. We describe human diseases with involvement of the central nervous system including inborn errors of metabolism, neurodevelopmental disorders, neuroinflammatory and neurodegenerative and paroxysmal diseases, in which retrotransposons (Alu and/or L1 elements) appear to be causally involved in genetic rearrangements. Sole binding of single-stranded retrotransposon transcripts by RNA editing enzymes rather than enzymatic deamination may have a homeostatic effect on retrotransposon turnover. We also review evidence in support of the emerging pathophysiological function of A-to-I editing of retrotransposons in inflammation and its implication for different neurological diseases including amyotrophic lateral sclerosis, frontotemporal dementia, Alzheimer's and Parkinson's disease, and epilepsy.