Dicer gene dcl2, required for the RNA silencing antiviral defense response in the chestnut blight fungus Cryphonectria parasitica, is inducible upon mycovirus infection and promotes viral RNA recombination. We now report that the antiviral defense response requires only one of the four C. parasitica Argonaute-like protein genes, agl2. The agl2 gene is required for the virus-induced increase in dcl2 transcript accumulation. Agl2 and dcl2 transcripts accumulated to much higher levels in response to hairpin RNA production or infection by a mutant CHV1-EP713 hypovirus lacking the suppressor of RNA silencing p29 than to wild-type CHV1-EP713. Similar results were obtained for an agl2-promoter/EGFP-reporter construct, indicating that p29-mediated repression of agl2 transcript accumulation is promoter-dependent. Significantly, the agl2 deletion mutant exhibited stable maintenance of non-viral sequences in recombinant hypovirus RNA virus vectors and the absence of hypovirus-defective interfering (DI) RNA production. These results establish a key role for an Argonaute gene in the induction of an RNA silencing antiviral defense response and the promotion of viral RNA recombination. They also provide evidence for a mechanism by which a virus-encoded RNA silencing suppressor represses the transcriptional induction of an RNA silencing component.