In Drosophila melanogaster, the small interfering RNA (siRNA) pathway is triggered by exogenous double-stranded RNA (dsRNA) or upon viral infection. This pathway requires Dicer-2 (Dcr-2) in association with a dsRNA-binding protein (dsRBP) called R2D2. A potentially distinct siRNA pathway, which requires Dcr-2 in association with a different dsRBP, called Loquacious (Loqs), is activated by endogenous dsRNA derived from transposons, structured loci and overlapping transcripts. Here we show that different sources of dsRNA enter a common siRNA pathway that requires R2D2 and Loqs. R2D2 and loqs mutants show impaired silencing triggered by injection of exogenous dsRNA or by artificial and natural expression of endogenous dsRNA. In addition, we show that these dsRBPs function sequentially and nonredundantly in collaboration with Dcr-2. Loqs is primarily required for dsRNA processing, whereas R2D2 is essential for the subsequent loading of siRNAs into effector Ago-RISC complexes.