Abundant approximately 28-nucleotide RNAs that are thought to direct histone H3 lysine 9 (H3K9) methylation and promote the elimination of nearly 15 Mbp of DNA from the developing somatic genome are generated during Tetrahymena thermophila conjugation. To identify the protein(s) that generates these small RNAs, we studied three Dicer-related genes encoded within the Tetrahymena genome, two that contain both RNase III and RNA helicase motifs, Dicer 1 (DCR1) and DCR2, and a third that lacks the helicase domain, Dicer-like 1 (DCL1). DCL1 is expressed upon the initiation of conjugation, and the protein localizes to meiotic micronuclei when bidirectional germ line transcription occurs and small RNAs begin to accumulate. Cells in which we disrupted the DCL1 gene (DeltaDCL1) grew normally and initiated conjugation as wild-type cells but arrested near the end of development and eventually died, unable to resume vegetative growth. These DeltaDCL1 cells failed to generate the abundant small RNAs but instead accumulated germ line-limited transcripts. Together, our findings demonstrate that these transcripts are the precursors of the small RNAs and that DCL1 performs RNA processing within the micronucleus. Postconjugation DeltaDCL1 cells die without eliminating the germ line-limited DNA sequences from their newly formed somatic macronuclei, a result that shows that this Dicer-related gene is required for programmed DNA rearrangements. Surprisingly, DeltaDCL1 cells were not deficient in overall H3K9 methylation, but this modification was not enriched on germ line-limited sequences as it is in wild-type cells, which clearly demonstrates that these small RNAs are essential for its targeting to specific loci.