Post-transcriptional processing of some long non-coding RNAs (lncRNAs) reveals that they are a source of miRNAs. We show that the 268-nt non-coding RNA component of mitochondrial RNA processing endoribonuclease, (RNase MRP), is the source of at least two short (∼20 nt) RNAs designated RMRP-S1 and RMRP-S2, which function as miRNAs. Point mutations in RNase MRP cause human cartilage-hair hypoplasia (CHH), and several disease-causing mutations map to RMRP-S1 and -S2. SHAPE chemical probing identified two alternative secondary structures altered by disease mutations. RMRP-S1 and -S2 are significantly reduced in two fibroblast cell lines and a B-cell line derived from CHH patients. Tests of gene regulatory activity of RMRP-S1 and -S2 identified over 900 genes that were significantly regulated, of which over 75% were down-regulated, and 90% contained target sites with seed complements of RMRP-S1 and -S2 predominantly in their 3' UTRs. Pathway analysis identified regulated genes that function in skeletal development, hair development and hematopoietic cell differentiation including PTCH2 and SOX4 among others, linked to major CHH phenotypes. Also, genes associated with alternative RNA splicing, cell proliferation and differentiation were highly targeted. Therefore, alterations RMRP-S1 and -S2, caused by point mutations in RMRP, are strongly implicated in the molecular mechanism of CHH.