microRNAs (miRNAs) are a large family of 21- to 22-nucleotide non-coding RNAs that interact with target mRNAs at specific sites to induce cleavage of the message or inhibit translation. miRNAs are excised in a stepwise process from primary miRNA (pri-miRNA) transcripts. The Drosha-Pasha/DGCR8 complex in the nucleus cleaves pri-miRNAs to release hairpin-shaped precursor miRNAs (pre-miRNAs). These pre-miRNAs are then exported to the cytoplasm and further processed by Dicer to mature miRNAs. Here we show that Drosophila Dicer-1 interacts with Loquacious, a double-stranded RNA-binding domain protein. Depletion of Loquacious results in pre-miRNA accumulation in Drosophila S2 cells, as is the case for depletion of Dicer-1. Immuno-affinity purification experiments revealed that along with Dicer-1, Loquacious resides in a functional pre-miRNA processing complex, and stimulates and directs the specific pre-miRNA processing activity. These results support a model in which Loquacious mediates miRNA biogenesis and, thereby, the expression of genes regulated by miRNAs.