Human Argonaute (Ago) proteins are essential components of the RNA-induced silencing complexes (RISCs). Argonaute 2 (Ago2) has a P-element-induced wimpy testis (PIWI) domain, which folds like RNase H and is responsible for target RNA cleavage in RNA interference. Proteins such as Dicer, TRBP, MOV10, RHA, RCK/p54 and KIAA1093 associate with Ago proteins and participate in small RNA processing, RISC loading and localization of Ago proteins in the cytoplasmic messenger RNA processing bodies. However, mechanisms that regulate RNA interference remain obscure. Here we report physical interactions between Ago2 and the alpha-(P4H-alpha(I)) and beta-(P4H-beta) subunits of the type I collagen prolyl-4-hydroxylase (C-P4H(I)). Mass spectrometric analysis identified hydroxylation of the endogenous Ago2 at proline 700. In vitro, both Ago2 and Ago4 seem to be more efficiently hydroxylated than Ago1 and Ago3 by recombinant human C-P4H(I). Importantly, human cells depleted of P4H-alpha(I) or P4H-beta by short hairpin RNA and P4H-alpha(I) null mouse embryonic fibroblast cells showed reduced stability of Ago2 and impaired short interfering RNA programmed RISC activity. Furthermore, mutation of proline 700 to alanine also resulted in destabilization of Ago2, thus linking Ago2 P700 and hydroxylation at this residue to its stability regulation. These findings identify hydroxylation as a post-translational modification important for Ago2 stability and effective RNA interference.