Dicer is a multidomain ribonuclease that processes double-stranded RNAs (dsRNAs) to 21 nt small interfering RNAs (siRNAs) during RNA interference, and excises microRNAs from precursor hairpins. Dicer contains two domains related to the bacterial dsRNA-specific endonuclease, RNase III, which is known to function as a homodimer. Based on an X-ray structure of the Aquifex aeolicus RNase III, models of the enzyme interaction with dsRNA, and its cleavage at two composite catalytic centers, have been proposed. We have generated mutations in human Dicer and Escherichia coli RNase III residues implicated in the catalysis, and studied their effect on RNA processing. Our results indicate that both enzymes have only one processing center, containing two RNA cleavage sites and generating products with 2 nt 3' overhangs. Based on these and other data, we propose that Dicer functions through intramolecular dimerization of its two RNase III domains, assisted by the flanking RNA binding domains, PAZ and dsRBD.