The evolutionarily conserved nuclear Piwi protein of Drosophila melanogaster is the defining member of the Argonaute small RNA-binding protein family. Guided by piRNAs, Piwi functions in transposon silencing in somatic and germ cells of gonads. We found that in ovarian somatic and germ cells, as well as in the established ovarian somatic cell line, Piwi accumulates predominantly in the nucleolus, the main nuclear compartment which participates not only in rRNA synthesis, but also in various cell stress responses. We have shown the colocalization of Piwi with the nucleolar marker proteins fibrillarin and Nopp140. The piwi^Nt mutation which prevents the transport of Piwi to the nucleus and disrupts transposon silencing led to 6-8 fold upregulation of rRNA gene expression, as assessed by the level of transcripts of transposon insertions in 28S rRNA genes. RNase treatment of live cultured ovarian somatic cells depleted Piwi from the nucleolus. The same effect was observed upon inhibition of the activity of RNA polymerase I, which transcribes rRNA genes, but not RNA polymerase II. In contrast, upon heat shock, Piwi concentrated in the nucleolus and was depleted from the nucleoplasm. These results implicate Piwi in RNA polymerase I activity modulation and stress response in the nucleolus. Possible noncanonical Piwi functions are discussed, which are not related to the role of Piwi in transposon silencing.