The evolutionary origin of human hepatitis delta virus (HDV) replication by RNA-directed transcription is unclear. Here we identify two species of 5'-capped, approximately 18-25-nucleotide small RNAs. One was of antigenomic polarity, corresponding to the 5' end of hepatitis delta antigen (HDAg) mRNA, and interacted with HDAg and RNA polymerase II (Pol II), whereas the other mapped to a structurally analogous region on the genomic RNA hairpin. An HDAg-interaction screen indicated that HDAg interacts with MOV10, the human homolog of the Arabidopsis thaliana RNA amplification factor gene SDE3 and Drosophila melanogaster RISC-maturation factor gene Armitage (armi). MOV10 knockdown inhibited HDV replication, but not HDAg mRNA translation, further supporting a role for MOV10 in RNA-directed transcription. Together, our studies define RNA hairpins as critical elements for the initiation of HDV-related, RNA-directed transcription. The identification of capped small RNAs and the involvement of MOV10 in HDV replication further suggest a conserved mechanism related to RNA-directed transcription in lower eukaryotes.