Inorganic phosphate blocks binding of pre‐miRNA to Dicer‐2 via its PAZ domain

In Drosophila, Dicer‐1 produces microRNAs (miRNAs) from pre‐miRNAs, whereas Dicer‐2 generates small interfering RNAs from long double‐stranded RNA (dsRNA), a process that requires ATP hydrolysis. We previously showed that inorganic phosphate inhibits Dicer‐2 cleavage of pre‐miRNAs, but not long dsRNAs. Here, we report that phosphate‐dependent substrate discrimination by Dicer‐2 reflects dsRNA substrate length. Efficient processing by Dicer‐2 of short dsRNA requires a 5′ terminal phosphate and a two‐nucleotide, 3′ overhang, but does not require ATP. Phosphate inhibits cleavage of such short substrates. In contrast, cleavage of longer dsRNA requires ATP but no specific end structure: phosphate does not inhibit cleavage of these substrates. Mutation of a pair of conserved arginine residues in the Dicer‐2 PAZ domain blocked cleavage of short, but not long, dsRNA. We propose that inorganic phosphate occupies a PAZ domain pocket required to bind the 5′ terminal phosphate of short substrates, blocking their use and restricting pre‐miRNA processing in flies to Dicer‐1. Our study helps explain how a small molecule can alter the substrate specificity of a nucleic acid processing enzyme.