We show, with miR171, that plant miRNA genes are modular independent transcription units in which the fold-back pre-miRNA is sufficient for miRNA processing, and that the upstream region contains highly specific promoter elements. Processing depends on flanking sequences within the miRNA stem-loop precursor rather than the miRNA sequence itself, and mutations affecting target pairing at the center and 5' but not 3' region of the miRNA compromise its function in vivo. Inactivation of the SDE1 RNA-dependent-RNA-polymerase was mandatory for accurate representation of miRNA activity by sensor constructs in Arabidopsis. Work in sde1 background revealed a near-perfect spatial overlap between the patterns of miR171 transcription and activity, supporting the idea that plant miRNAs enable cell differentiation.