Transposons evolve rapidly and can mobilize and trigger genetic instability. Piwi-interacting RNAs (piRNAs) silence these genome pathogens, but it is unclear how the piRNA pathway adapts to invasion of new transposons. In Drosophila, piRNAs are encoded by heterochromatic clusters and maternally deposited in the embryo. Paternally inherited P element transposons thus escape silencing and trigger a hybrid sterility syndrome termed P-M hybrid dysgenesis. We show that P-M hybrid dysgenesis activates both P elements and resident transposons and disrupts the piRNA biogenesis machinery. As dysgenic hybrids age, however, fertility is restored, P elements are silenced, and P element piRNAs are produced de novo. In addition, the piRNA biogenesis machinery assembles, and resident elements are silenced. Significantly, resident transposons insert into piRNA clusters, and these new insertions are transmitted to progeny, produce novel piRNAs, and are associated with reduced transposition. P element invasion thus triggers heritable changes in genome structure that appear to enhance transposon silencing.