Drosophila Dicer-2 generates small interfering RNAs (siRNAs) from long double-stranded RNA (dsRNA), whereas Dicer-1 produces microRNAs (miRNAs) from pre-miRNA. What makes the two Dicers specific for their biological substrates? We find that purified Dicer-2 can efficiently cleave pre-miRNA, but that inorganic phosphate and the Dicer-2 partner protein R2D2 inhibit pre-miRNA cleavage. Dicer-2 contains C-terminal RNase III domains that mediate RNA cleavage and an N-terminal helicase motif, whose function is unclear. We show that Dicer-2 is a dsRNA-stimulated ATPase that hydrolyzes ATP to ADP; ATP hydrolysis is required for Dicer-2 to process long dsRNA, but not pre-miRNA. Wild-type Dicer-2, but not a mutant defective in ATP hydrolysis, can generate siRNAs faster than it can dissociate from a long dsRNA substrate. We propose that the Dicer-2 helicase domain uses ATP to generate many siRNAs from a single molecule of dsRNA before dissociating from its substrate.