The nucleolytic activity of animal Argonaute proteins is deeply conserved, despite its having no obvious role in microRNA-directed gene regulation. In mice, Ago2 (also known as Eif2c2) is uniquely required for viability, and only this family member retains catalytic competence. To investigate the evolutionary pressure to conserve Argonaute enzymatic activity, we engineered a mouse with catalytically inactive Ago2 alleles. Homozygous mutants died shortly after birth with an obvious anaemia. Examination of microRNAs and their potential targets revealed a loss of miR-451, a small RNA important for erythropoiesis. Though this microRNA is processed by Drosha (also known as Rnasen), its maturation does not require Dicer. Instead, the pre-miRNA becomes loaded into Ago and is cleaved by the Ago catalytic centre to generate an intermediate 3′ end, which is then further trimmed. Our findings link the conservation of Argonaute catalysis to a conserved mechanism of microRNA biogenesis that is important for vertebrate development. The class of small RNAs called microRNAs, which function in regulating gene expression, are transcribed as longer sequences that are processed to make the mature form. Two nucleases, Drosha and Dicer, act sequentially to trim microRNAs to size. Now a subset of miRNAs, typified by the miR-451 protein involved in erythropoiesis, is shown to be processed independently of Dicer. Instead, secondary cleavage is carried out by Ago2, an Argonaute protein that is part of the complex that aligns the miRNA and messenger RNA. The nucleolytic activity of animal Argonaute proteins is deeply conserved, despite it having no obvious role in microRNA-directed gene regulation. This new finding links the conservation of Argonaute catalysis to a conserved mechanism of microRNA biogenesis that is important for vertebrate development. MicroRNAs, which regulate gene expression, are transcribed as longer sequences that are processed to produce the mature form. Two nuclease enzymes, Drosha and Dicer, are known to act sequentially to trim the microRNA to size. Here, however, a subset of microRNAs that includes miR-451, important for erythropoiesis, is found to be processed independently of Dicer. Rather, the Argonaute protein — part of the complex that aligns microRNA and messenger RNA — carries out the secondary cleavage.