Binding of microRNA (miRNA) to mRNA within the RNA-induced silencing complex (RISC) leads to either translational inhibition or to destruction of the target mRNA. Both of these functions are executed by Argonaute 2 (Ago2). Using hematopoiesis in mice as a model system to study the physiological function of Ago2 in vivo, we found that Ago2 controls early development of lymphoid and erythroid cells. We show that the unique and defining feature of Ago2, the Slicer endonuclease activity, is dispensable for hematopoiesis. Instead, we identified Ago2 as a key regulator of miRNA homeostasis. Deficiency in Ago2 impairs miRNA biogenesis from precursor-miRNAs followed by a reduction in miRNA expression levels. Collectively, our data identify Ago2 as a highly specialized member of the Argonaute family with an essential nonredundant Slicer-independent function within the mammalian miRNA pathway.