Hundreds of small RNAs of ~22 nucleotides, collectively named microRNAs (miRNAs), have been discovered recently in animals and plants. Although their functions are being unravelled, their mechanism of biogenesis remains poorly understood. miRNAs are transcribed as long primary transcripts (pri-miRNAs) whose maturation occurs through sequential processing events: the nuclear processing of the pri-miRNAs into stem-loop precursors of ~70 nucleotides (pre-miRNAs), and the cytoplasmic processing of pre-miRNAs into mature miRNAs. Dicer, a member of the RNase III superfamily of bidentate nucleases, mediates the latter step, whereas the processing enzyme for the former step is unknown. Here we identify another RNase III, human Drosha, as the core nuclease that executes the initiation step of miRNA processing in the nucleus. Immunopurified Drosha cleaved pri-miRNA to release pre-miRNA in vitro. Furthermore, RNA interference of Drosha resulted in the strong accumulation of pri-miRNA and the reduction of pre-miRNA and mature miRNA in vivo. Thus, the two RNase III proteins, Drosha and Dicer, may collaborate in the stepwise processing of miRNAs, and have key roles in miRNA-mediated gene regulation in processes such as development and differentiation.