Dicer is an evolutionarily conserved ribonuclease III that is necessary for microRNA (miRNA) processing and the synthesis of small interfering RNAs from long double-stranded RNA. Although it has been shown that Dicer plays important roles in the mammalian germline and early embryogenesis, the functions of Dicer-dependent pathways in the somatic cells of the female reproductive tract are unknown. Using a transgenic line in which Cre recombinase is driven by the anti-Müllerian hormone receptor type 2 promoter, we conditionally inactivated Dicer1 in the mesenchyme of the developing Müllerian ducts and postnatally in ovarian granulosa cells and mesenchyme-derived cells of the oviducts and uterus. Deletion of Dicer in these cell types results in female sterility and multiple reproductive defects including decreased ovulation rates, compromised oocyte and embryo integrity, prominent bilateral paratubal (oviductal) cysts, and shorter uterine horns. The paratubal cysts act as a reservoir for spermatozoa and oocytes and prevent embryos from transiting the oviductal isthmus and passing the uterotubal junction to enter the uterus for implantation. Deep sequencing of small RNAs in oviduct revealed down-regulation of specific miRNAs in Dicer conditional knockout females compared with wild type. The majority of these differentially expressed miRNAs are predicted to regulate genes important for Müllerian duct differentiation and mesenchyme-derived structures, and several of these putative target genes were significantly up-regulated upon conditional deletion of Dicer1. Thus, our findings reveal diverse and critical roles for Dicer and its miRNA products in the development and function of the female reproductive tract.