Suppression of viral infection by RNA in a nucleotide sequence homology‐dependent manner was first reported in plants in early 1990s. Studies in the past 15 years have established a completely new RNA‐based immune system against viruses that is mechanistically related to RNA silencing or RNA interference (RNAi). This viral immunity begins with recognition of viral double‐stranded or structured RNA by the Dicer nuclease family of host immune receptors. In fungi, plants and invertebrates, the viral RNA trigger is processed into small interfering RNAs (siRNAs) to direct specific silencing of the homologous viral genomic and/or messenger RNAs by an RNaseH‐like Argonaute protein. Deep sequencing of virus‐derived siRNAs indicates that the immunity against viruses with a positive‐strand RNA genome is induced by Dicer recognition of dsRNA formed during the initiation of viral progeny (+)RNA synthesis. The RNA‐based immune pathway in these organisms overlaps the canonical dsRNA‐siRNA pathway of RNAi and may require amplification of viral siRNAs by host RNA‐dependent RNA polymerase in plants and nematodes. Production of virus‐derived small RNAs is undetectable in mammalian cells infected with RNA viruses. However, infection of mammals with several nucleus‐replicating DNA viruses induces production of virus‐derived microRNAs capable of silencing host and viral mRNAs as found for viral siRNAs. Remarkably, recent studies indicate that prokaryotes also produce virus‐derived small RNAs known as CRISPR RNAs to guide antiviral defense in a manner that has yet to be defined. In this article, we review the recent progress on the identification and mechanism of the key components including viral sensors, viral triggers, effectors, and amplifiers, of the small RNA‐directed viral immunity. We also highlight some of the many unresolved questions.