Small interfering RNAs (siRNAs) and microRNAs (miRNAs) bind to Argonaute (AGO) family proteins to form a related set of effector complexes that have diverse roles in post-transcriptional gene regulation throughout the eukaryotic lineage. Here sequence and structural analysis of the MID domain of the AGO proteins identified similarities with a family of allosterically regulated bacterial ligand-binding domains. We used in vitro and in vivo approaches to show that certain AGO proteins (those involved in translational repression) have conserved this functional allostery between two distinct sites, one involved in binding miRNA-target duplex and the other in binding the 5' cap feature (m(7)GpppG) of eukaryotic mRNAs. This allostery provides an explanation for how miRNA-bound effector complexes may avoid indiscriminate repressive action (mediated through binding interactions with the cap) before full target recognition.