microRNAs (miRNAs) represent a novel class of genome-encoded eukaryotic regulatory RNAs that silence gene expression posttranscriptionally. Although the proteins mediating miRNA biogenesis and function have been identified, the precise mechanism by which miRNAs regulate the expression of target mRNAs remains unclear. We summarize recent work from our laboratory demonstrating that miRNAs silence gene expression by at least two independent mechanisms: by repressing translation and/or by promoting mRNA degradation. In Drosophila, both mechanisms require Argonaute 1 (AGO1) and the P-body component GW182. Moreover, mRNA degradation by miRNAs is effected by the enzymes involved in general mRNA decay, including deadenylases and decapping enzymes, which also localize to P bodies. Our findings suggest a model for miRNA function in which AGO1 associates with miRNA targets through miRNA:mRNA base-pairing interactions. GW182 interacts with AGO1 and recruits deadenylases and decapping enzymes, leading to mRNA degradation. However, not all miRNA targets are degraded: Some stay in a translationally silent state, from which they may eventually be released. We propose that the final outcome of miRNA regulation (i.e., degradation vs. translational repression) is influenced by other RNA-binding proteins interacting with the targeted mRNA.