Double-stranded RNA-binding proteins (dsRBPs), such as R2D2 and Loquacious (Loqs), function in tandem with Dicer (Dcr) enzymes in RNA interference (RNAi). In Drosophila, Dcr-1/Loqs and Dcr-2/R2D2 complexes generate microRNAs (miRNAs) and small interfering RNAs (siRNAs), respectively. Although R2D2 does not regulate siRNA production, R2D2 and Dcr-2 coordinately bind siRNAs to promote assembly of the siRNA-induced silencing (siRISC) complexes. Conversely, Loqs enhances miRNA production. It is uncertain if Dcr-1 and Loqs facilitate miRNA loading onto the miRISC complexes. Here we used loqs knockout (KO) flies to characterize the physiological functions of Loqs in the miRNA pathway. Northern analysis revealed consistent accumulation of precursor (pre)-miRNAs in loqsKO flies. However, the lack of Loqs had differential effects on mature miRNAs: some are diminished, whereas others maintain wild-type levels. Importantly, the data suggest that miRNA production is not the rate-limiting step of the miRNA pathway. We show that Dcr-1, but not Loqs, is critical for assembly of miRISCs by using dcr-1 or loqs null egg extract. Consistent with this, recombinant Dcr-1 could efficiently interact with miRNA duplex in the absence of Loqs. Together, our results indicate that Loqs plays a prominent role in miRNA biogenesis, but is largely dispensable for miRISC assembly. Thus, Loqs and R2D2 represent two distinct functional modes for dsRBPs in the RNAi pathways.