Small RNAs play an important role in regulating gene expression through transcriptional and post-transcriptional gene silencing. Biogenesis of small RNAs from longer double-stranded (ds) RNA requires the activity of dicer-like ribonucleases (DCLs), which in plants are aided by dsRNA binding proteins (DRBs). To gain insight into this pathway in the model plant Arabidopsis, we searched for interactors of DRB4 by immunoprecipitation followed by mass spectrometry-based fingerprinting and discovered DRB7.1. This interaction, verified by reciprocal coimmunoprecipitation and bimolecular fluorescence complementation, colocalizes with markers of cytoplasmic siRNA bodies and nuclear dicing bodies. In vitro experiments using tobacco BY-2 cell lysate (BYL) revealed that the complex of DRB7.1/DRB4 impairs cleavage of diverse dsRNA substrates into 24-nucleotide (nt) small interfering (si) RNAs, an action performed by DCL3. DRB7.1 also negates the action of DRB4 in enhancing accumulation of 21-nt siRNAs produced by DCL4. Overexpression of DRB7.1 in Arabidopsis altered accumulation of siRNAs in a manner reminiscent of drb4 mutant plants, suggesting that DRB7.1 can antagonize the function of DRB4 in siRNA accumulation in vivo as well as in vitro. Specifically, enhanced accumulation of siRNAs from an endogenous inverted repeat correlated with enhanced DNA methylation, suggesting a biological impact for DRB7.1 in regulating epigenetic marks. We further demonstrate that RNase three-like (RTL) proteins RTL1 and RTL2 cleave dsRNA when expressed in BYL, and that this activity is impaired by DRB7.1/DRB4. Investigating the DRB7.1-DRB4 interaction thus revealed that a complex of DRB proteins can antagonize, rather than promote, RNase III activity and production of siRNAs in plants.