Members of the Argonaute protein family have been linked through a combination of genetic and biochemical studies to RNA interference (RNAi) and related phenomena. Here, we describe the characterization of the first Argonaute protein (AGO1) in Trypanosoma brucei, the earliest divergent eukaryote where RNAi has been described so far. AGO1 is predominantly cytoplasmic and is found in a ribonucleoprotein particle with small interfering RNAs (siRNAs), and this particle is present in a soluble form, as well as associated with polyribosomes. A genetic knockout of AGO1 leads to a loss of RNAi, and concomitantly, endogenous retroposon-derived siRNAs as well as siRNAs derived from transgenic double-stranded RNA are reduced to almost undetectable levels. Furthermore, AGO1 deficiency leads to an increase in retroposon transcript abundance via mechanisms operating at the transcriptional level and at the RNA stability level. Our results suggest that AGO1 function is required for production and/or stabilization of siRNAs and provide the first evidence for an Argonaute protein being involved in the regulation of retroposon transcript levels.