Piwi-interacting RNAs (piRNAs) are germ line-specific small RNA molecules that have a function in genome defence and germ cell development. They associate with a specific class of Argonaute proteins, named Piwi, and function through an RNA interference-like mechanism. piRNAs carry a 2'-O-methyl modification at their 3' end, which is added by the Hen1 enzyme. We show that zebrafish hen1 is specifically expressed in germ cells and is essential for maintaining a female germ line, whereas it is dispensable in the testis. Hen1 protein localizes to nuage through its C-terminal domain, but is not required for nuage formation. In hen1 mutant testes, piRNAs become uridylated and adenylated. Uridylation frequency is highest on retro-transposon-derived piRNAs and is accompanied by decreased piRNA levels and mild derepression of transposon transcripts. Altogether, our data suggest the existence of a uridylation-mediated 3'-5' exonuclease activity acting on piRNAs in zebrafish germ cells, which is counteracted by nuage-bound Hen1 protein. This system discriminates between piRNA targets and is required for ovary development and fully efficient transposon silencing.