Argonaute proteins play a central role in mediating post-transcriptional gene regulation by microRNAs (miRNAs). Argonautes use the nucleotide sequences in miRNAs as guides for identifying target messenger RNAs for repression. Here, we used single-molecule FRET to directly visualize how human Argonaute-2 (Ago2) searches for and identifies target sites in RNAs complementary to its miRNA guide. Our results suggest that Ago2 initially scans for target sites with complementarity to nucleotides 2–4 of the miRNA. This initial transient interaction propagates into a stable association when target complementarity extends to nucleotides 2–8. This stepwise recognition process is coupled to lateral diffusion of Ago2 along the target RNA, which promotes the target search by enhancing the retention of Ago2 on the RNA. The combined results reveal the mechanisms that Argonaute likely uses to efficiently identify miRNA target sites within the vast and dynamic agglomeration of RNA molecules in the living cell. Display omitted •Argonaute uses one-dimensional diffusion as a search mechanism•Argonaute initially probes for target sites using a small region (nt 2–4) of miRNA•The seed (nt 2–8) is the minimal motif required for stable binding to target sites•The lateral diffusion promotes cooperativity between neighboring target sites Argonaute identifies miRNA targets by scanning potential target RNAs using one-dimensional diffusion while probing for sites complementary to a small segment of the miRNA and remains stably associated to sites complementary to the full miRNA seed.