The exonuclease ERI-1 negatively regulates RNA interference in Caenorhabditis elegans and Schizosaccharomyces pombe, and is required for production of some C. elegans endogenous small interfering RNAs. We show that ERI-1 performs 3' end processing of the 5.8S ribosomal RNA in both C. elegans and S. pombe. In C. elegans, two protein isoforms of ERI-1 are localized to the cytoplasm, and each has distinct functions in ribosomal RNA processing and negative regulation of RNA interference.