Several recent studies have provided evidence that LIN28, a cytoplasmic RNA-binding protein, inhibits the biogenesis of members of the let-7 microRNA family at the Dicer step in both mammals and Caenorhabditis elegans. However, the precise mechanism of inhibition is still poorly understood. Here we report on an in vitro study, which combined RNase footprinting, gel shift binding assays, and processing assays, to investigate the molecular basis and function of the interaction between the native let-7g precursor (pre-let-7g) and LIN28. We have mapped the structure of pre-let-7g and identified some regions of the terminal loop of pre-let-7g that physically interact with LIN28. We have also identified a conformational change upon LIN28 binding that results in the unwinding of an otherwise double-stranded region at the Dicer processing site of pre-let-7g. Furthermore, we showed that a mutant pre-let-7g that displays an open upper stem inhibited pre-let-7g Dicer processing to the same extent as LIN28. The data support a mechanism by which LIN28 can directly inhibit let-7g biogenesis at the Dicer processing step.