The ribonuclease III superfamily represents a structurally related group of double-strand (ds) specific endoribonucleases which play key roles in diverse prokaryotic and eukaryotic RNA maturation and degradation pathways. A dsRNA-binding domain (dsRBD) is a conserved feature of the superfamily and is important for substrate recognition. RNase III family members also exhibit a "catalytic" domain, in part defined by a set of highly conserved amino acids, of which at least one (a glutamic acid) is important for cleavage but not for substrate binding. However, it is not known whether the catalytic domain requires the dsRBD for activity. This report shows that a truncated form of Escherichia coli RNase III lacking the dsRBD (RNase III[DeltadsRBD]) can accurately cleave small processing substrates in vitro. Optimal activity of RNase III[DeltadsRBD] is observed at low salt concentrations (<60 mM Na(+)), either in the presence of Mg(2+) (>25 mM) or Mn(2+) ( approximately 5 mM). At 60 mM Na(+) and 5 mM Mn(2+) the catalytic efficiency of RNase III[DeltadsRBD] is similar to that of RNase III at physiological salt concentrations and Mg(2+). In the presence of Mg(2+) RNase III[DeltadsRBD] is less efficient than the wild-type enzyme, due to a higher K(m). Similar to RNase III, RNase III[DeltadsRBD] is inhibited by high concentrations of Mn(2+), which is due to metal ion occupancy of an inhibitory site on the enzyme. RNase III[DeltadsRBD] retains strict specificity for dsRNA, as indicated by its inability to cleave (rA)(25), (rU)(25), or (rC)(25). Moreover, dsDNA, ssDNA, or an RNA-DNA hybrid are not cleaved. Low (micromolar) concentrations of ethidium bromide block RNase III[DeltadsRBD] cleavage of substrate, which is similar to the inhibition seen with RNase III and is indicative of an intercalative mode of inhibition. Finally, RNase III[DeltadsRBD] is sensitive to specific Watson-Crick base-pair substitutions which also inhibit RNase III. These findings support an RNase III mechanism of action in which the catalytic domain (i) can function independently of the dsRBD, (ii) is dsRNA-specific, and (iii) participates in cleavage site selection.