Transposable element activity is repressed in the germline in animals by PIWI-interacting RNAs (piRNAs), a class of small RNAs produced by genomic loci mostly composed of TE sequences. The mechanism of induction of piRNA production by these loci is still enigmatic. We have shown that, in Drosophila melanogaster, a cluster of tandemly repeated P-lacZ-white transgenes can be activated for piRNA production by maternal inheritance of a cytoplasm containing homologous piRNAs. This activated state is stably transmitted over generations and allows trans-silencing of a homologous transgenic target in the female germline. Such an epigenetic conversion displays the functional characteristics of a paramutation, i.e., a heritable epigenetic modification of one allele by the other. We report here that piRNA production and trans-silencing capacities of the paramutated cluster depend on the function of the rhino, cutoff, and zucchini genes involved in primary piRNA biogenesis in the germline, as well as on that of the aubergine gene implicated in the ping-pong piRNA amplification step. The 21-nt RNAs, which are produced by the paramutated cluster, in addition to 23- to 28-nt piRNAs are not necessary for paramutation to occur. Production of these 21-nt RNAs requires Dicer-2 but also all the piRNA genes tested. Moreover, cytoplasmic transmission of piRNAs homologous to only a subregion of the transgenic locus can generate a strong paramutated locus that produces piRNAs along the whole length of the transgenes. Finally, we observed that maternally inherited transgenic small RNAs can also impact transgene expression in the soma. In conclusion, paramutation involves both nuclear (Rhino, Cutoff) and cytoplasmic (Aubergine, Zucchini) actors of the piRNA pathway. In addition, since it is observed between nonfully homologous loci located on different chromosomes, paramutation may play a crucial role in epigenome shaping in Drosophila natural populations.