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Hosts are continually selected to evolve new defenses against an ever-changing array of pathogens. To understand this process, we examined the genetic basis of resistance to the Drosophila A virus in Drosophila melanogaster. In a natural population, we identified a polymorphic transposable element (TE) insertion that was associated with an ∼19,000-fold reduction in viral titers, allowing flies to largely escape the harmful effects of infection by this virulent pathogen. The insertion occurs in the protein-coding sequence of the gene Veneno, which encodes a Tudor domain protein. By mutating Veneno with CRISPR-Cas9 in flies and expressing it in cultured cells, we show that the ancestral allele of the gene has no effect on viral replication. Instead, the TE insertion is a gain-of-function mutation that creates a gene encoding a novel resistance factor. Viral titers remained reduced when we deleted the TE sequence from the transcript, indicating that resistance results from the TE truncating the Veneno protein. This is a novel mechanism of virus resistance and a new way by which TEs can contribute to adaptation.