M2 is a double-stranded RNA (dsRNA) element occurring in the hypovirulent isolate Rhs 1A1 of the plant pathogenic basidiomycete Rhizoctonia solani. Rhs 1A1 originated as a sector of the virulent field isolate Rhs 1AP, which contains no detectable amount of the M2 dsRNA. The complete sequence (3,570 bp) of the M2 dsRNA has been determined. A 6.9-kbp segment of total DNA from either Rhs 1A1 or Rhs 1AP hybridizes with an M2-specific cDNA probe. The sequences of M2 dsRNA and of PCR products generated from Rhs 1A1 total DNA were found to be identical. Thus this report describes a fungal host containing full-length DNA copies of a dsRNA element. A major portion of the M2 dsRNA is located in the cytoplasm, whereas a smaller amount is found in mitochondria. Based on either the universal or the mitochondrial genetic code of filamentous fungi, one strand of M2 encodes a putative protein of 754 amino acids. The resulting polypeptide has all four motifs of a dsRNA viral RNA-dependent RNA polymerase (RDRP) and is phylogenetically related to the RDRP of a mitochondrial dsRNA associated with hypovirulence in strain NB631 of Cryphonectria parasitica, incitant of chestnut blight. This polypeptide also has significant sequence similarity with two domains of a pentafunctional polypeptide, which catalyzes the five central steps of the shikimate pathway in yeast and filamentous fungi.