The slicer activity of the RNA-induced silencing complex resides within its Argonaute (Ago) component, in which the PIWI domain provides the catalytic residues governing guide-strand mediated site-specific cleavage of target RNA. Here we report on structures of ternary complexes of Thermus thermophilus Ago catalytic mutants with 5'-phosphorylated 21-nucleotide guide DNA and complementary target RNAs of 12, 15 and 19 nucleotides in length, which define the molecular basis for Mg(2+)-facilitated site-specific cleavage of the target. We observe pivot-like domain movements within the Ago scaffold on proceeding from nucleation to propagation steps of guide-target duplex formation, with duplex zippering beyond one turn of the helix requiring the release of the 3'-end of the guide from the PAZ pocket. Cleavage assays on targets of various lengths supported this model, and sugar-phosphate-backbone-modified target strands showed the importance of structural and catalytic divalent metal ions observed in the crystal structures.