The RNA-binding protein DiGeorge Critical Region 8 (DGCR8) and its partner nuclease Drosha are essential for processing of microRNA (miRNA) primary transcripts (pri-miRNAs) in animals. Previous work showed that DGCR8 forms a highly stable and active complex with ferric [Fe(III)] heme using two endogenous cysteines as axial ligands. Here we report that reduction of the heme iron to the ferrous [Fe(II)] state in DGCR8 abolishes the pri-miRNA processing activity. The reduction causes a dramatic increase in the rate of heme dissociation from DGCR8, rendering the complex labile. Electronic absorption, magnetic circular dichroism, and resonance Raman spectroscopies indicate that reduction of the heme iron is accompanied by loss of the cysteines as axial ligands. ApoDGCR8 dimers, generated through reduction and removal of the heme, show low levels of activity in pri-miRNA processing in vitro. Importantly, ferric, but not ferrous, heme restores the activity of apoDGCR8 to the level of the native ferric complex. This study demonstrates binding specificity of DGCR8 for ferric heme, provides direct biochemical evidence for ferric heme serving as an activator for miRNA maturation, and suggests that an intracellular environment increasing the availability of ferric heme may enhance the efficiency of pri-miRNA processing.