Genes that encode the ARGONAUTE (AGO) proteins make up a highly conserved family, and several members in the family have been defined to function in posttranscriptional gene silencing (PTGS) in plants, quelling in fungi and RNAi in animals. The Arabidopsis AGO1 gene has been demonstrated to be crucial in multiple RNA silencing pathways (PTGS, microRNA and trans-acting siRNA pathways); however, its biological functions do not seem to be fully addressed. Here we report characterizations of a new hypomorphic ago1 allele, ago1-37, and show novel AGO1 functions important in lateral organ development. We found that double mutants combining ago1-37 with asymmetric leaves1 (as1) or asymmetric leaves2 (as2) produced more severe phenotypes than the single mutants, indicating that AGO1 genetically interacts with AS1 and AS2 for plant development. Similar to the previously characterized mutants rdr6, sgs3 and zippy, which are deficient in the trans-acting siRNA activity, ago1-37 also showed an earlier phase transition from juvenile to adult leaves. Moreover, based on the detailed phenotypic analyses of single and double mutant plants, we found that the AGO1 functions are required for repressing several class I KNOTTED1-like homeobox (KNOX) genes in leaves, and for specifying both adaxial and abaxial identities of the leaf and petal. Our results demonstrate several important AGO1 functions in plant lateral organ development.