RNA interference is a powerful mechanism for sequence-specific inhibition of gene expression. It is widely known that small interfering RNAs (siRNAs) targeting the same region of a target-messenger RNA can have widely different efficacies. In efforts to better understand the siRNA features that influence knockdown efficiency, we analyzed siRNA interactions with a high-molecular weight complex in whole cell extracts prepared from two different cell lines. Using biochemical tools to study the nature of the complex, our results demonstrate that the primary siRNA-binding protein in the whole cell extracts is Dicer. We find that Dicer is capable of discriminating highly functional versus poorly functional siRNAs by recognizing the presence of 2-nt 3' overhangs and the thermodynamic properties of 2-4 bp on both ends of effective siRNAs. Our results suggest a role for Dicer in pre-selection of effective siRNAs for handoff to Ago2. This initial selection is reflective of the overall silencing potential of an siRNA.