PAZ PIWI domain (PPD) proteins, together with the RNA cleavage products of Dicer, form ribonucleoprotein complexes called RNA-induced silencing complexes (RISCs). RISCs mediate gene silencing through targeted messenger RNA cleavage and translational suppression. The PAZ domains of PPD and Dicer proteins were originally thought to mediate binding between PPD proteins and Dicer, although no evidence exists to support this theory. Here we show that PAZ domains are not required for PPD protein-Dicer interactions. Rather, a subregion of the PIWI domain in PPD proteins, the PIWI-box, binds directly to the Dicer RNase III domain. Stable binding between PPD proteins and Dicer was dependent on the activity of Hsp90. Unexpectedly, binding of PPD proteins to Dicer inhibits the RNase activity of this enzyme in vitro. Lastly, we show that PPD proteins and Dicer are present in soluble and membrane-associated fractions, indicating that interactions between these two types of proteins may occur in multiple compartments.