A virus-associated RNA (VAI) of adenoviruses is a cytoplasmic non-coding RNA and it plays an important role for viral replication in infected cells. VAI RNA transcripts, produced by RNA polymerase III (pol III), form tightly structured stems, which confer resistance to cellular defense systems. We demonstrate here that small RNAs of approximately 22 nucleotides are produced from a terminal stem region but not from an apical stem of VAI RNA. We determined the processing sites of VAI RNA by S1 nuclease mapping and further confirmed that the processed small RNA can act as small interfering RNAs (siRNAs) or as microRNAs (miRNAs) in transient transfection assays and during viral infection. Our data demonstrate that non-coding RNAs synthesized by pol III can be substrates for Dicer, and diced small RNAs might regulate cellular phenomena as siRNAs and miRNAs.