microRNAs function in diverse developmental and physiological processes by regulating target gene expression at the post-transcriptional level. ALG-1 is one of two Caenorhabditis elegans Argonautes (ALG-1 and ALG-2) that together are essential for microRNA biogenesis and function. Here, we report the identification of novel antimorphic (anti) alleles of ALG-1 as suppressors of lin-28(lf) precocious developmental phenotypes. The alg-1(anti) mutations broadly impair the function of many microRNAs and cause dosage-dependent phenotypes that are more severe than the complete loss of ALG-1. ALG-1(anti) mutant proteins are competent for promoting Dicer cleavage of microRNA precursors and for associating with and stabilizing microRNAs. However, our results suggest that ALG-1(anti) proteins may sequester microRNAs in immature and functionally deficient microRNA Induced Silencing Complexes (miRISCs), and hence compete with ALG-2 for access to functional microRNAs. Immunoprecipitation experiments show that ALG-1(anti) proteins display an increased association with Dicer and a decreased association with AIN-1/GW182. These findings suggest that alg-1(anti) mutations impair the ability of ALG-1 miRISC to execute a transition from Dicer-associated microRNA processing to AIN-1/GW182 associated effector function, and indicate an active role for ALG/Argonaute in mediating this transition.