PIWI proteins are highly expressed in the germ line and are essential for fertility, but little is known about their functions outside of the gonad. The cnidarian Hydra is a simple metazoan animal with well-characterized stem/progenitor cells that provide a model for comparative analysis of PIWI function. We have identified ~15 million Hydra piRNAs associated with Hywi and/or Hyli and found that they exhibit a strong ping-pong signature of piRNA biogenesis. We found that piRNAs map to transposon sequences in our transcriptome with a 25- to 35-fold enrichment over the abundance of these sequences. Thus, our data demonstrate the deep conservation of the known Piwi-piRNA mechanisms, including the regulation of transposons. In addition, we found that Hydra piRNAs map to non-transposon genes largely in the sense orientation with respect to the mRNA, and have identified these genes as potential regulatory targets of the PIWI-piRNA pathway. To determine the targets that are specific to each lineage, we isolated each lineage by FACS and sequenced the small RNAs. The small RNAs were mapped to the transcriptome and we found that transposon regulation is largely specific to the interstitial lineage.