Double‐stranded(ds) RNA has diverse roles in gene expression and regulation, host defense, and genome surveillance in bacterial and eukaryotic cells. A central aspect of dsRNA function is its selective recognition and cleavage by members of the ribonuclease III (RNase III) family of divalent‐metal‐ion‐dependent phosphodiesterases. The processing of dsRNA by RNase III family members is an essential step in the maturation and decay of coding and noncoding RNAs, including miRNAs and siRNAs. RNase III, as first purified from Escherichia coli, has served as a biochemically well‐characterized prototype, and other bacterial orthologs provided the first structural information. RNase III family members share a unique fold (RNase III domain) that can dimerize to form a structure that binds dsRNA and cleaves phosphodiesters on each strand, providing the characteristic 2 nt, 3′‐overhang product ends. Ongoing studies are uncovering the functions of additional domains, including, inter alia, the dsRNA‐binding and PAZ domains that cooperate with the RNase III domain to select target sites, regulate activity, confer processivity, and support the recognition of structurally diverse substrates. RNase III enzymes function in multicomponent assemblies that are regulated by diverse inputs, and at least one RNase III‐related polypeptide can function as a noncatalytic, dsRNA‐binding protein. This review summarizes the current knowledge of the mechanisms of catalysis and target site selection of RNase III family members, and also addresses less well understood aspects of these enzymes and their interactions with dsRNA. WIREs RNA 2014, 5:31–48. doi: 10.1002/wrna.1195This article is categorized under: RNA Processing > Processing of Small RNAs RNA Turnover and Surveillance > Turnover/Surveillance Mechanisms Regulatory RNAs/RNAi/Riboswitches > Biogenesis of Effector Small RNAs