Dnmt2 proteins are the most conserved members of the DNA methyltransferase enzyme family, but their substrate specificity and biological functions have been a subject of controversy. We show here that, in addition to tRNA(Asp-GTC), tRNA(Val-AAC) and tRNA(Gly-GCC) are also methylated by Dnmt2. Drosophila Dnmt2 mutants showed reduced viability under stress conditions, and Dnmt2 relocalized to stress granules following heat shock. Strikingly, stress-induced cleavage of tRNAs was Dnmt2-dependent, and Dnmt2-mediated methylation protected tRNAs against ribonuclease cleavage. These results uncover a novel biological function of Dnmt2-mediated tRNA methylation, and suggest a role for Dnmt2 enzymes during the biogenesis of tRNA-derived small RNAs.