The conserved core of the exosome, the major eukaryotic 3' --> 5' exonuclease, contains nine subunits that form a ring similar to the phosphorolytic bacterial PNPase and archaeal exosome, as well as Dis3. Dis3 is homologous to bacterial RNase II, a hydrolytic enzyme. Previous studies have suggested that all subunits are active 3' --> 5' exoRNases. We show here that Dis3 is responsible for exosome core activity. The purified exosome core has a hydrolytic, processive and Mg(2+)-dependent activity with characteristics similar to those of recombinant Dis3. Moreover, a catalytically inactive Dis3 mutant has no exosome core activity in vitro and shows in vivo RNA degradation phenotypes similar to those resulting from exosome depletion. In contrast, mutations in Rrp41, the only subunit carrying a conserved phosphorolytic site, appear phenotypically not different from wild-type yeast. We observed that the yeast exosome ring mediates interactions with protein partners, providing an explanation for its essential function.