Mammals have one Dicer gene required for biogenesis of small RNAs in microRNA (miRNA) and RNA interference (RNAi) pathways. Yet, endogenous RNAi is highly active in oocytes but not in somatic cells. Here, we provide a mechanistical explanation for high RNAi activity in mouse oocytes. The main Dicer isoform in oocytes is transcribed from an intronic MT-C retrotransposon, which functions as a promoter of an oocyte-specific Dicer isoform (denoted DicerO). DicerO lacks an N-terminal helicase domain and has a higher cleavage activity than the full-length Dicer from somatic cells. DicerO can rescue the miRNA pathway and, in addition, it efficiently produces small RNAs from long dsRNA substrates. Thus, control of endogenous RNAi activity in mice occurs via alternative Dicer isoform and the phylogenetic origin of DicerO demonstrates evolutionary plasticity of RNA silencing pathways. NIH3T3 cells or mouse embryonic stem cells expressing oocyte-specific or somatic form of Dicer were transiently transfected with a plasmid expressing long double-stranded RNA (within the 3-UTR of EGFP reporter) or left without transfection for controls.