In plants, a particular class of short interfering (si)RNAs can serve as a signal to induce cytosine methylation at homologous genomic regions. If the targeted DNA has promoter function, this RNA-directed DNA methylation (RdDM) can result in transcriptional gene silencing (TGS). RNA-directed transcriptional gene silencing (RdTGS) of transgenes provides a versatile system for the study of epigenetic gene regulation. We used transcription of a nopaline synthase promoter (ProNOS)-inverted repeat (IR) to provide a RNA signal that triggers de novo cytosine methylation and TGS of a homologous ProNOS copy in trans. Utilizing a ProNOS-NPTII reporter gene showing high sensitivity to silencing in this two component system, a forward genetic screen for EMS-induced no rna-directed transcriptional silencing (nrd) mutations was performed in Arabidopsis thaliana. Three nrd mutant lines were found to contain one novel loss-of-function allele of idn2/rdm12 and two of nrpd2a/nrpe2a. IDN2/RDM12 encodes a XH/XS domain protein that is able to bind double-stranded RNA with 5' overhangs, while NRPD2a/NRPE2a encodes the common second-largest subunit of the plant specific DNA-dependent RNA polymerases IV and V involved in silencing processes. Both idn2/rdm12 and nrpd2a/nrpe2a release target transgene expression and reduce CHH context methylation at transgenic as well as endogenous RdDM target regions to similar extents. Nevertheless, accumulation of IR-derived siRNA is not affected, allowing us to present a refined model for the pathway of RdDM and RdTGS that positions function of IDN2 downstream of siRNA formation and points to an important role for its XH domain.