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.