The Arabidopsis genome encodes four Dicer-like (DCL) proteins, two of which contain putative nuclear localization signals. This suggests one or more nuclear pathways for processing double-stranded (ds) RNA in plants. To study the subcellular location of processing of nuclear-encoded dsRNA involved in transcriptional silencing, we examined short interfering (si) RNA and micro (mi) RNA accumulation in transgenic Arabidopsis expressing nuclear and cytoplasmic variants of P19, a viral protein that suppresses posttranscriptional gene silencing. P19 binds specifically to DCL-generated 21- to 25-nucleotide (nt) dsRNAs with 2-nt 3' overhangs and reportedly suppresses the accumulation of all size classes of siRNA. Nuclear P19 resulted in a significant reduction of 21- to 22-nt siRNAs and a 21-nt miRNA, but had a lesser effect on 24-nt siRNAs. Cytoplasmic P19 did not decrease the quantity but resulted in a 2-nt truncation of siRNAs and miRNA. This suggests that the direct products of DCL cleavage of dsRNA precursors of 21- to 22-nt siRNAs and miRNA are present in the nucleus, where their accumulation is partially repressed, and in the cytoplasm, where both normal sized and truncated forms accumulate. DCL1, which contains two putative nuclear localization signals, is required for miRNA production but not siRNA production. DCL1-green fluorescent protein fusion proteins localize to nuclei in transient expression assays, indicating that DCL1 is a nuclear protein. The results are consistent with a model in which dsRNA precursors of miRNAs and at least some 21- to 22-nt siRNAs are processed in the nucleus, the former by nuclear DCL1 and the latter by an unknown nuclear DCL.