The association between the Pencil nebula ( RCW 37 , NGC 2736 ) , the Vela X-ray fragment D/D ’ and the recently discovered new X-ray supernova remnant ( RX J0852.0-4622 ) in Vela is investigated . Recently published Chandra images of D/D ’ are compared with optical images of RCW 37 and confirm the close association of the two objects . New optical line profiles of RCW 37 from an extended slit position passing through this unusual optical nebula are presented . They reveal a partial velocity ellipse with expansion velocities of around 120 ~ { } { km~ { } s ^ { -1 } } . Various scenarios for the origin of the nebula are considered and the evidence of a link with RX J0852.0-4622 is reviewed . A funnel of gas similar to those in the Crab and DEM34a SNRs is not ruled out but a more plausible explanation may be that a ‘ wavy sheet ’ is responsible . We suggest that RX J0852.0-4622 is located within the older larger Vela SNR and that some of the X-ray gas from RX J0852.0-4622 has collided with the dense H i wall of the older remnant . This gives rise to the morphology and velocity structure of the optical emission and explains the unusual X-ray emission from this portion of the supernova remnant . If our hypothesis is correct , a distance prediction of 250 \pm 30 ~ { } { pc } can be made , based on recent measurements of the distance to the old Vela SNR . This is at the lower end of the range of distances quoted in the literature would confirm unusual nature of this young nearby supernova remnant .