In plants, SGS3 and RNA-dependent RNA polymerase 6 (RDR6) are required to convert single- to double-stranded RNA (dsRNA) in the innate RNAi-based antiviral response and to produce both exogenous and endogenous short-interfering RNAs. Although a role for RDR6-catalysed RNA-dependent RNA polymerisation in these processes seems clear, the function of SGS3 is unknown. Here, we show that SGS3 is a dsRNA-binding protein with unexpected substrate selectivity favouring 5'-overhang-containing dsRNA. The conserved XS and coiled-coil domains are responsible for RNA-binding activity. Furthermore, we find that the V2 protein from tomato yellow leaf curl virus, which suppresses the RNAi-based host immune response, is a dsRNA-binding protein with similar specificity to SGS3. In competition-binding experiments, V2 outcompetes SGS3 for substrate dsRNA recognition, whereas a V2 point mutant lacking the suppressor function in vivo cannot efficiently overcome SGS3 binding. These findings suggest that SGS3 recognition of dsRNA containing a 5' overhang is required for subsequent steps in RNA-mediated gene silencing in plants, and that V2 functions as a viral suppressor by preventing SGS3 from accessing substrate RNAs.