Eukaryotic cells express a wide variety of endogenous small regulatory RNAs that regulate heterochromatin formation, developmental timing, defence against parasitic nucleic acids and genome rearrangement. Many small regulatory RNAs are thought to function in nuclei. For instance, in plants and fungi, short interfering RNA (siRNAs) associate with nascent transcripts and direct chromatin and/or DNA modifications. To understand further the biological roles of small regulatory RNAs, we conducted a genetic screen to identify factors required for RNA interference (RNAi) in Caenorhabditis elegans nuclei. Here we show that the gene nuclear RNAi defective-2 (nrde-2) encodes an evolutionarily conserved protein that is required for siRNA-mediated silencing in nuclei. NRDE-2 associates with the Argonaute protein NRDE-3 within nuclei and is recruited by NRDE-3/siRNA complexes to nascent transcripts that have been targeted by RNAi. We find that nuclear-localized siRNAs direct an NRDE-2-dependent silencing of pre-messenger RNAs (pre-mRNAs) 3' to sites of RNAi, an NRDE-2-dependent accumulation of RNA polymerase (RNAP) II at genomic loci targeted by RNAi, and NRDE-2-dependent decreases in RNAP II occupancy and RNAP II transcriptional activity 3' to sites of RNAi. These results define NRDE-2 as a component of the nuclear RNAi machinery and demonstrate that metazoan siRNAs can silence nuclear-localized RNAs co-transcriptionally. In addition, these results establish a novel mode of RNAP II regulation: siRNA-directed recruitment of NRDE factors that inhibit RNAP II during the elongation phase of transcription.