RNA interference (RNAi), a gene-silencing pathway triggered by double-stranded RNA, is conserved in diverse eukaryotic species but has been lost in the model budding yeast Saccharomyces cerevisiae. Here, we show that RNAi is present in other budding yeast species, including Saccharomyces castellii and Candida albicans. These species use noncanonical Dicer proteins to generate small interfering RNAs, which mostly correspond to transposable elements and Y' subtelomeric repeats. In S. castellii, RNAi mutants are viable but have excess Y' messenger RNA levels. In S. cerevisiae, introducing Dicer and Argonaute of S. castellii restores RNAi, and the reconstituted pathway silences endogenous retrotransposons. These results identify a previously unknown class of Dicer proteins, bring the tool of RNAi to the study of budding yeasts, and bring the tools of budding yeast to the study of RNAi.