Ribonuclease III (RNase III) enzymes occur ubiquitously in biology and are responsible for processing RNA precursors into functional RNAs that participate in protein synthesis, RNA interference and a range of other cellular activities. Members of the RNase III enzyme family, including Escherichia coli RNase III, Rnt1, Dicer and Drosha, share the ability to recognize and cleave double-stranded RNA (dsRNA), typically at specific positions or sequences. Recent biochemical and structural data have shed new light on how RNase III enzymes catalyze dsRNA hydrolysis and how substrate specificity is achieved. A major theme emerging from these studies is that accessory domains present in different RNase III enzymes are the key determinants of substrate selectivity, which in turn dictates the specialized biological function of each type of RNase III protein.