Cryptic unstable transcripts (CUTs) are short, 300–600-nucleotide (nt) RNA polymerase II transcripts that are rapidly degraded by the nuclear RNA exosome in yeast. CUTs are widespread and probably represent the largest share of hidden transcription in the yeast genome. Similarly to small nucleolar and small nuclear RNAs, transcription of CUT-encoding genes is terminated by the Nrd1 complex pathway. We show here that this termination mode and ensuing CUTs degradation crucially depend on the position of RNA polymerase II relative to the transcription start site. Notably, position sensing correlates with the phosphorylation status of the polymerase C-terminal domain (CTD). The Nrd1 complex is recruited to chromatin via interactions with both the nascent RNA and the CTD, but a permissive phosphorylation status of the latter is absolutely required for efficient transcription termination. We discuss the mechanism underlying the regulation of coexisting cryptic and mRNA-productive transcription.