Previous studies indicated that genome rearrangement involving DNA sequence elimination that occurs at late stages of conjugation in Tetrahymena is epigenetically controlled by siRNA-like scan (scn) RNAs produced from nongenic, heterogeneous, bidirectional, micronuclear transcripts synthesized at early stages of conjugation. Here, we show that Dcl1p, one of three Tetrahymena Dicer-like enzymes, is required for processing the micronuclear transcripts to scnRNAs. DCL1 is also required for methylation of histone H3 at Lys 9, which, in wild-type cells, specifically occurs on the sequences (IESs) being eliminated. These results argue that Dcl1p processes nongenic micronuclear transcripts to scnRNAs and is required for IES elimination. This is the first evidence linking nongenic micronuclear transcripts, scnRNAs, and genome rearrangement. Dcl1p also is required for proper mitotic and meiotic segregation of micronuclear chromosomes and for normal chromosome alignment in meiotic prophase, suggesting that DCL1 has multiple functions in regulating chromosome dynamics.