MicroRNAs (miRNAs) are 21-24 nucleotides long molecules processed from imperfect double-stranded RNAs (dsRNAs). They regulate gene expression by targeting complementary mRNA for cleavage or interfering with their translation. In Arabidopsis, point mutations in or short truncations of the nuclear DICER-LIKE1 (DCL1) or HEN1 protein reduce miRNA accumulation and increase uncleaved target mRNAs accumulation, resulting in developmental abnormalities. Here, we show that miRNA accumulation also depends on the activity of HYL1, a nuclear dsRNA binding protein. hyl1 mutants exhibit developmental defects overlapping with that of dcl1 and hen1 mutants, suggesting that DCL1, HEN1, and HYL1 act together in the nucleus. We validate additional target mRNAs and show that reduced miRNA accumulation in hyl1 correlates with an increased accumulation of uncleaved target mRNAs, including meristem- and auxin-related genes, providing clues for the developmental abnormalities of hyl1 and for the previous identification of hyl1 as a mutant with altered responses to phytohormones. Lastly, we show that posttranscriptional transgene silencing occurs in hyl1, suggesting that HYL1 has specialized function in the plant miRNA pathway, whereas the HYL1-related RDE-4 and R2D2 proteins associate with DICER in the cytoplasm and act in the RNAi pathway in C. elegans and Drosophila, respectively.