Small RNA (sRNAs)-mediated RNA silencing plays a key role in host-microbe interactions. We investigated Dicer (DCL)-mediated endogenous and cross-kingdom RNA silencing in the biocontrol fungus Clonostachys rosea during mycoparasitic and beneficial interactions with fungal and plant hosts, respectively. We showed that the deletion of the DCL2 gene in C. rosea resulted in mutants with reduced specialised metabolite production, mycoparasitism, and biocontrol ability. However, its root colonisation ability was increased. Dual-RNA seq analyses revealed the downregulation of secondary metabolite biosynthetic genes in C. rosea Δdcl2 strains. Additionally, defence response-related genes were downregulated in wheat during interactions with Δdcl2 strains compared to the wildtype. These results align with the reduced biocontrol and increased root colonisation ability of Δdcl2. sRNA sequencing identified three wheat miRNAs predicted to target C. rosea polyketide synthase gene pks29, known for its role in fungal antagonism and biocontrol. Two of these miRNAs were demonstrated to enter C. rosea from wheat roots and silence the expression of pks29, which has been previously shown to play a role in fungal antagonism and biocontrol. Our results provide evidence for sRNA-mediated secondary metabolite production in C. rosea, required for biocontrol, and for the cross-kingdom RNA silencing of the C. rosea gene by wheat miRNAs. These findings hold promise for future studies on sRNA-mediated RNA silencing in fungal biocontrol and formulate strategies for future biocontrol applications.