The miRNA pathway has been shown to regulate developmentally important genes. Dicer-1 is required to cleave endogenously encoded microRNA (miRNA) precursors into mature miRNAs that regulate endogenous gene expression. RNA interference (RNAi) is a gene silencing mechanism triggered by double-stranded RNA (dsRNA) that protects organisms from parasitic nucleic acids. In Drosophila, Dicer-2 cleaves dsRNA into 21 base-pair small interfering RNA (siRNA) that are loaded into RISC (RNA induced silencing complex) that in turn cleaves mRNAs homologous to the siRNAs. Dicer-2 co-purifies with R2D2, a low-molecular weight protein that loads siRNA onto Ago-2 in RISC. Loss of R2D2 results in defective RNAi. However, unlike mutants in other RNAi components like Dicer-2 or Ago-2, we report here that r2d2(1) mutants have striking developmental defects. r2d2(1) mutants have reduced female fertility, producing less than 1/10 the normal number of progeny. These escapers have normal morphology. We show R2D2 functions in the ovary, specifically in the somatic tissues giving rise to the stalk and other follicle cells critical for establishing the cellular architecture of the oocyte. Most interestingly, the female fertility defects are dramatically enhanced when one copy of the dcr-1 gene is missing and Dicer-1 protein co-immunoprecipitates with R2D2 antisera. These data show that r2d2(1) mutants have reduced viability and defective female fertility that stems from abnormal follicle cell function, and Dicer-1 impacts this process. We conclude that R2D2 functions beyond its role in RNA interference to include ovarian development in Drosophila.