Eukaryotic Argonautes bind small RNAs and use them as guides to find complementary RNA targets and induce gene silencing. Though homologs of eukaryotic Argonautes are present in many bacteria and archaea, their small RNA partners and functions are unknown. We found that the Argonaute of Rhodobacter sphaeroides (RsAgo) associates with 15–19 nt RNAs that correspond to the majority of transcripts. RsAgo also binds single-stranded 22–24 nt DNA molecules that are complementary to the small RNAs and enriched in sequences derived from exogenous plasmids as well as genome-encoded foreign nucleic acids such as transposons and phage genes. Expression of RsAgo in the heterologous E. coli system leads to formation of plasmid-derived small RNA and DNA and plasmid degradation. In a R. sphaeroides mutant lacking RsAgo, expression of plasmid-encoded genes is elevated. Our results indicate that RNAi-related processes found in eukaryotes are also conserved in bacteria and target foreign nucleic acids. Display omitted •RsAgo associates with 15–19 nt RNA and 22–24 nt DNA molecules in vivo•RsAgo-associated small RNAs correspond to the majority of cellular transcripts•Small DNAs are complementary to the small RNAs and enriched in foreign sequences•RsAgo degrades plasmid DNA and represses expression of plasmid-encoded genes