Abstract Members of the ribonuclease III (RNase III) family regulate gene expression by processing double-stranded RNA (dsRNA). This family includes eukaryotic Dicer and Drosha enzymes that generate small dsRNAs in the RNA interference (RNAi) pathway. The fungus Mucor lusitanicus, which causes the deadly infection mucormycosis, has a complex RNAi system encompassing a non-canonical RNAi pathway (NCRIP) that regulates virulence by degrading specific mRNAs. In this pathway, Dicer function is replaced by R3B2, an atypical class I RNase III, and small single-stranded RNAs (ssRNAs) are produced instead of small dsRNA as Dicer-dependent RNAi pathways. Here, we show that R3B2 forms a homodimer that binds to ssRNA and dsRNA molecules, but exclusively cuts ssRNA, in contrast to all known RNase III. The dsRNA cleavage inability stems from its unusual RNase III domain (RIIID) because its replacement by a canonical RIIID allows dsRNA processing. A crystal structure of R3B2 RIIID resembles canonical RIIIDs, despite the low sequence conservation. However, the groove that accommodates dsRNA in canonical RNases III is narrower in the R3B2 homodimer, suggesting that this feature could be responsible for the cleavage specificity for ssRNA. Conservation of this activity in R3B2 proteins from other mucormycosis-causing Mucorales fungi indicates an early evolutionary acquisition.