In several species, Piwi/piRNA genome silencing defects cause immediate sterility that correlates with transposon expression and transposon-induced genomic instability. In C. elegans, mutations in the Piwi-related gene (prg-1) and other piRNA deficient mutants cause a transgenerational decline in fertility over a period of several generations. Here we show that the sterility of late generation piRNA mutants correlates poorly with increases in DNA damage signaling. Instead, sterile individuals consistently exhibit altered perinuclear germ granules. We show that disruption of germ granules does not activate transposon expression but induces multiple phenotypes found in sterile prg-1 pathway mutants. Furthermore, loss of the germ granule component pgl-1 enhances prg-1 mutant infertility. Environmental restoration of germ granule function for sterile pgl-1 mutants restores their fertility. We propose that Piwi mutant sterility is a reproductive arrest phenotype that is characterized by perturbed germ granule structure and is phenocopied by germ granule dysfunction, independent of genomic instability.