In animals, the majority of microRNAs regulate gene expression through the RNA interference (RNAi) machinery without inducing small-interfering RNA (siRNA)-directed mRNA cleavage. Thus, the mechanisms by which microRNAs repress their targets have remained elusive. Recently, Argonaute proteins, which are key RNAi effector components, and their target mRNAs were shown to localize to cytoplasmic foci known as P-bodies or GW-bodies. Here, we show that the Argonaute proteins physically interact with a key P-/GW-body subunit, GW182. Silencing of GW182 delocalizes resident P-/GW-body proteins and impairs the silencing of microRNA reporters. Moreover, mutations that prevent Argonaute proteins from localizing in P-/GW-bodies prevent translational repression of mRNAs even when Argonaute is tethered to its target in a siRNA-independent fashion. Thus, our results support a functional link between cytoplasmic P-bodies and the ability of a microRNA to repress expression of a target mRNA.