Abstract Background Silencing of transposable elements (TEs) is essential for maintaining genome stability. Plants use small RNAs (sRNAs) to direct DNA methylation to TEs (RNA-directed DNA methylation; RdDM). Similar mechanisms of epigenetic silencing in the fungal kingdom have remained elusive. Results We use sRNA sequencing and methylation data to gain insight into epigenetics in the dikaryotic fungus Puccinia graminis f. sp. tritici (Pgt), which causes the devastating stem rust disease on wheat. We use Hi-C data to define the Pgt centromeres and show that they are repeat-rich regions (~250 kb) that are highly diverse in sequence between haplotypes and, like in plants, are enriched for young TEs. DNA cytosine methylation is particularly active at centromeres but also associated with genome-wide control of young TE insertions. Strikingly, over 90% of Pgt sRNAs and several RNAi genes are differentially expressed during infection. Pgt induces waves of functionally diversified sRNAs during infection. The early wave sRNAs are predominantly 21 nts with a 5′ uracil derived from genes. In contrast, the late wave sRNAs are mainly 22-nt sRNAs with a 5′ adenine and are strongly induced from centromeric regions. TEs that overlap with late wave sRNAs are more likely to be methylated, both inside and outside the centromeres, and methylated TEs exhibit a silencing effect on nearby genes. Conclusions We conclude that rust fungi use an epigenetic silencing pathway that might have similarity with RdDM in plants. The Pgt RNAi machinery and sRNAs are under tight temporal control throughout infection and might ensure genome stability during sporulation.