Human Dicer is an integral component of the RNA interference pathway. Dicer processes premicro-RNA and double-strand RNA to, respectively, mature micro-RNA and short interfering RNA (siRNA) and transfers the processed products to the RNA-induced silencing complex. To better understand the factors that are important for the binding, translocation, and selective recognition of the siRNA strands, we determined the binding affinities of human Dicer for processed products (siRNA) and short single-strand RNAs (ssRNA). siRNAs and ssRNAs competitively inhibited human Dicer activity, suggesting that they are interacting with the active site of the enzyme. The dissociation constants (Kd) for unmodified siRNAs were 5-11-fold weaker compared with a 27-nucleotide double-strand RNA substrate. Chemically modified siRNAs exhibited binding affinities for Dicer comparable with the substrate. 3'-dinucleotide overhangs in the siRNA affected the binding affinity of human Dicer for the siRNA and biased strand loading into RNA-induced silencing complex. The Kd values for the ssRNAs ranged from 3- to 40-fold weaker than the Kd for the substrate. Sequence composition of the 3'-terminal nucleotides of the ssRNAs exhibited the greatest effect on Dicer binding. Dicer cleaved substrates containing short siRNA-like double-strand regions and extended 3' or 5' ssRNA overhangs in the adjacent ssRNA regions. Remarkably, cleavage sites were observed consistent with the enzyme entering the substrate from the extended 3' ssRNA terminus. These data suggest that the siRNAs and ssRNAs interact predominantly with the PAZ domain of the enzyme. Finally, the tightest binding siRNAs were also more potent inhibitors of gene expression.