Dicer proteins function in RNA interference (RNAi) pathways by generating small RNAs (sRNAs). Here, we report the solution structure of the C-terminal domain of Schizosaccharomyces pombe Dicer (Dcr1). The structure reveals an unusual double-stranded RNA binding domain (dsRBD) fold embedding a novel zinc-binding motif that is conserved among dicers in yeast. Although the C-terminal domain of Dcr1 still binds nucleic acids, this property is dispensable for proper functioning of Dcr1. In contrast, disruption of zinc coordination renders Dcr1 mainly cytoplasmic and leads to remarkable changes in gene expression and loss of heterochromatin assembly. In summary, our results reveal novel insights into the mechanism of nuclear retention of Dcr1 and raise the possibility that this new class of dsRBDs might generally function in nucleocytoplasmic trafficking and not substrate binding. The C-terminal domain of Dcr1 constitutes a novel regulatory module that might represent a potential target for therapeutic intervention with fungal diseases.