Abstract Background The accumulation of carotenoids in adipose tissue leading to yellow fat is, in sheep, a heritable recessive trait that can be attributed to a nonsense mutation in the beta-carotene oxygenase 2 (BCO2) gene. However, not all sheep breeds suffering from yellow fat have this nonsense mutation, meaning that other functional mechanisms must exist. We investigated one such breed, the Norwegian spælsau. Results In spælsau we detected an aberration in BCO2 mRNA. Nanopore sequencing of genomic DNA revealed the insertion of a 7.9 kb endogenous Jaagsiekte Sheep Retrovirus (enJSRV) sequence in the first intron of the BCO2 gene. Close examination of its cDNA revealed that the BCO2 genes first exon was spliced together with enJSRV-sequence immediately downstream of a potential -AG splice acceptor site at enJSRV position 415. The hybrid protein product consists of 29 amino acids coded by the BCO2 exon 1, one amino acid coded by the junction sequence, followed by 28 amino acids arbitrary coded for by the enJSRV-sequence, before a translation stop codon is reached. Conclusions Considering that the functional BCO2 protein consists of 575 amino acids, it is unlikely that the 58 amino acid BCO2/enJSRV hybrid protein can display any enzymatic function. The existence of this novel BCO2 allele represents an alternative functional mechanism accounting for BCO2 inactivation and is a perfect example of the potential benefits for searching for structural variants using long-read sequencing data.