The enzymatic cleavage of double-stranded(ds) RNA is a key step in the maturation and decay of many eukaryotic and bacterial RNAs, and is a required event in RNA interference and related gene silencing pathways. Members of the ribonuclease III family are the primary agents of dsRNA processing, and function as divalent–metal-ion-dependent phosphodiesterases. The mechanism by which bacterial RNase III identifies its substrates and catalyzes phosphodiester cleavage is only partially understood. We have obtained kinetic and inhibitor evidence that RNase III employs a two-Mg2+-ion catalytic mechanism, and that the enzyme recognizes local RNA sequence and structural features to select the target sites in its substrates. In addition, we have demonstrated that bacterial RNase III can act as a non-catalytic RNA-binding protein, with gene-regulatory potential. These results will be presented in the context of the crystal structures and gene-regulatory functions of RNase III orthologs.