Transposable elements are stretches of DNA that can move and multiply within the genome of an organism. The Caenorhabditis elegans genome contains multiple Tc1 transposons that jump in somatic cells, but are silenced in the germ line. Many mutants that have lost this silencing have also lost the ability to execute RNA interference (RNAi), a process whereby genes are suppressed by exposure to homologous double-stranded RNA (dsRNA). Here we show how RNAi causes transposon silencing in the nematode germ line. We find evidence for transposon-derived dsRNAs, in particular to the terminal inverted repeats, and show that these RNAs may derive from read-through transcription of entire transposable elements. Small interfering RNAs of Tc1 were detected. When a germline-expressed reporter gene is fused to a stretch of Tc1 sequence, this transgene is silenced in a manner dependent on functional mutator genes (mut-7, mut-16 and pk732). These results indicate that RNAi surveillance is triggered by fortuitous read-through transcription of dispersed Tc1 copies, which can form dsRNA as a result of 'snap-back' of the terminal inverted repeats. RNAi mediated by this dsRNA silences transposase gene expression.