The Arabidopsis gene SERRATE (SE) controls leaf development, meristem activity, inflorescence architecture and developmental phase transition. It has been suggested that SE, which encodes a C(2)H(2) zinc finger protein, may change gene expression via chromatin modification. Recently, SE has also been shown to regulate specific microRNAs (miRNAs), miR165/166, and thus control shoot meristem function and leaf polarity. However, it remains unclear whether and how SE modulates specific miRNA processing. Here we show that the se mutant exhibits some similar developmental abnormalities as the hyponastic leaves1 (hyl1) mutant. Since HYL1 is a nuclear double-stranded RNA-binding protein acting in the DICER-LIKE1 (DCL1) complex to regulate the first step of primary miRNA transcript (pri-miRNA) processing, we hypothesized that SE could play a previously unrecognized and general role in miRNA processing. Genetic analysis supports that SE and HYL1 act in the same pathway to regulate plant development. Consistently, SE is critical for the accumulation of multiple miRNAs and the trans-acting small interfering RNA (ta-siRNA), but is not required for sense post-transcriptional gene silencing. We further demonstrate that SE is localized in the nucleus and interacts physically with HYL1. Finally, we provide evidence that SE and HYL1 probably act with DCL1 in processing pri-miRNAs before HEN1 in miRNA biogenesis. In plants and animals, miRNAs are known to be processed in a stepwise manner from pri-miRNA. Our data strongly suggest that SE plays an important and general role in pri-miRNA processing, and it would be interesting to determine whether animal SE homologues may play similar roles in vivo.