Small RNAs are well described in higher eukaryotes such as mammals and plants; however, knowledge in simple eukaryotes such as filamentous fungi is limited. In this study, we discovered and characterized methylguanosine-capped and polyadenylated small RNAs (CPA-sRNAs) by using differential RNA selection, full-length cDNA cloning and 454 transcriptome sequencing of the rice blast fungus Magnaporthe oryzae. This fungus causes blast, a devastating disease on rice, the principle food staple for over half the world’s population. CPA-sRNAs mapped primarily to the transcription initiation and termination sites of protein-coding genes and were positively correlated with gene expression, particularly for highly expressed genes including those encoding ribosomal proteins. Numerous CPA-sRNAs also mapped to rRNAs, tRNAs, snRNAs, transposable elements and intergenic regions. Many other 454 sequence reads could not be mapped to the genome; however, inspection revealed evidence for non-template additions and chimeric sequences. CPA-sRNAs were independently confirmed using a high affinity variant of eIF-4E to capture 5′-methylguanosine-capped RNA followed by 3′-RACE sequencing. These results expand the repertoire of small RNAs in filamentous fungi.