Nuage, a well-conserved perinuclear organelle found in germline cells, is thought to mediate retroelement repression in Drosophila melanogaster by regulating the production of Piwi-interacting RNAs (piRNAs). In this study, we present evidence that the nuage–piRNA pathway components can be found in cytoplasmic foci that also contain retroelement transcripts, antisense piRNAs, and proteins involved in messenger RNA (mRNA) degradation. These mRNA degradation proteins, decapping protein 1/2 (DCP1/2), Me31B (maternal expression at 31B), and pacman (PCM), are normally thought of as components of processing bodies. In spindle-E (spn-E) and aubergine (aub) mutants that lack piRNA production, piRNA pathway proteins no longer overlap the mRNA degradation proteins. Concomitantly, spn-E and aub mutant ovaries show an accumulation of full-length retroelement transcripts and prolonged stabilization of HeT-A mRNA, supporting the role of piRNAs in mediating posttranscriptional retroelement silencing. HeT-A mRNA is derepressed in mRNA degradation mutants twin, dcp1, and ski3, indicating that these enzymes also aid in removing full-length transcripts and/or decay intermediates.