Animals can adapt to unfavorable environments through changes in physiology or behavior. In the nematode, Caenorhabditis elegans, environmental conditions perceived early in development determine whether the animal enters either the reproductive cycle, or enters into an alternative diapause stage named dauer. Here, we show that endogenous RNAi pathways play a role in dauer formation in crowding (high pheromone), starvation, and high temperature conditions. Disruption of the Mutator proteins or the nuclear Argonaute CSR-1 result in differential dauer-deficient phenotypes that are dependent upon the experienced environmental stress. We provide evidence that the RNAi pathways function in chemosensory neurons for dauer formation, upstream of the TGF-b and insulin signaling pathways. In addition, we show that Mutator MUT-16 expression in a subset of individual pheromone-sensing neurons is sufficient for dauer formation in high pheromone conditions, but not in starvation or high temperature conditions. Furthermore, we also show that MUT-16 and CSR-1 are required for expression of a subset of G proteins with functions in the detection of pheromone components. Together, our data suggest a model where Mutator-amplified siRNAs that associate with the CSR-1 pathway promote expression of genes required for the detection and signaling of environmental conditions to regulate development and behavior in C. elegans. This study highlights a mechanism whereby RNAi pathways mediate the link between environmental stress and adaptive phenotypic plasticity in animals.