The disruption of one of two dicer genes, dcl-2, of the chestnut blight fungus Cryphonectria parasitica was recently shown to increase susceptibility to mycovirus infection (G. C. Segers, X. Zhang, F. Deng, Q. Sun, and D. L. Nuss, Proc. Natl. Acad. Sci. USA 104:12902-12906, 2007). We now report the accumulation of virus-derived small RNAs (vsRNAs) in hypovirus CHV1-EP713-infected wild-type and dicer gene dcl-1 mutant C. parasitica strains but not in hypovirus-infected dcl-2 mutant and dcl-1 dcl-2 double-mutant strains. The CHV1-EP713 vsRNAs were produced from both the positive and negative viral RNA strands at a ratio of 3:2 in a nonrandom distribution along the viral genome. We also show that C. parasitica responds to hypovirus and mycoreovirus infections with a significant increase (12- to 20-fold) in dcl-2 expression while the expression of dcl-1 is increased only modestly (2-fold). The expression of dcl-2 is further increased ( approximately 35-fold) following infection with a hypovirus CHV1-EP713 mutant that lacks the p29 suppressor of RNA silencing. The combined results demonstrate the biogenesis of mycovirus-derived small RNAs in a fungal host through the action of a specific dicer gene, dcl-2. They also reveal that dcl-2 expression is significantly induced in response to mycovirus infection by a mechanism that appears to be repressed by the hypovirus-encoded p29 suppressor of RNA silencing.