In somatic cells, untranslated mRNAs accumulate in cytoplasmic foci called processing bodies or P-bodies. P-bodies contain complexes that inhibit translation and stimulate mRNA deadenylation, decapping, and decay. Recently, certain P-body proteins have been found in germ granules, RNA granules specific to germ cells. We have investigated a possible connection between P-bodies and germ granules in Caenorhabditis elegans. We identify PATR-1, the C. elegans homolog of the yeast decapping activator Pat1p, as a unique marker for P-bodies in C. elegans embryos. We find that P-bodies are inherited maternally as core granules that mature differently in somatic and germline blastomeres. In somatic blastomeres, P-bodies recruit the decapping activators LSM-1 and LSM-3. This recruitment requires the LET-711/Not1 subunit of the CCR4-NOT deadenylase and correlates spatially and temporally with the onset of maternal mRNA degradation. In germline blastomeres, P-bodies are maintained as core granules lacking LSM-1 and LSM-3. P-bodies interact with germ granules, but maintain distinct dynamics and components. The maternal mRNA nos-2 is maintained in germ granules, but not in P-bodies. We conclude that P-bodies are distinct from germ granules, and represent a second class of RNA granules that behaves differently in somatic and germline cells.