Tomato line 30.4 was obtained engineering the nucleocapsid (N) gene of tomato spotted wilt virus into plant genome, and immunity to tomato spotted wilt virus infection of its self-pollinated homozygous progeny was observed. Despite the presence of a high amount of transgenic transcripts, transgenic proteins have not been detected, suggesting a mechanism of resistance mediated by RNA. In the present study, we identify post-transcriptional gene silencing as the main mechanism of resistance, which is able to spread systemically through grafting, and show that the line 30.4 resistant plants produce both 24 and 21-22 nt N-gene specific siRNA classes. The transgenic locus in chromosome 4 shows complex multiple insertions of four T-DNA copies in various orientations, all with 3’ end deletions in the terminator and part of the N gene. However, for three of them, polyadenylated transcripts are produced, due to flanking tomato genome sequences acting as alternative terminators. Interestingly, starting at the fifth generation after the transformation event, some individual plants show a tomato spotted wilt virus-susceptible phenotype. The change is associated with the disappearance of transgene-specific transcripts and siRNAs, and with hyper-methylation of the transgene, which proceeds gradually through the generations. Once it reaches a critical threshold, the shift from post-transcriptional gene silencing to transcriptional silencing of the transgene eliminates the previously well established virus resistance.