Although Dicer is essential for general microRNA (miRNA) biogenesis, vertebrate mir-451 is Dicer independent. Instead, its short pre-miRNA hairpin is 'sliced' by Ago2, then 3'-resected into mature miRNAs. Here, we show that Drosophila cells and animals generate functional small RNAs from mir-451-type precursors. However, their bulk maturation arrests as Ago-cleaved pre-miRNAs, which mostly associate with the RNAi effector AGO2. Routing of pre-mir-451 hairpins to the miRNA effector AGO1 was inhibited by Dicer-1 and its partner Loqs. Loss of these miRNA factors promoted association of pre-mir-451 with AGO1, which sliced them and permitted maturation into ∼ 23-26 nt products. The difference was due to the 3' modification of single-stranded species in AGO2 by Hen1 methyltransferase, whose depletion permitted 3' trimming of Ago-cleaved pre-miRNAs in AGO2. Surprisingly, Nibbler, a 3'-5' exoribonuclease that trims 'long' mature miRNAs in AGO1, antagonized miR-451 processing. We used an in vitro reconstitution assay to identify a soluble, EDTA-sensitive activity that resects sliced pre-miRNAs in AGO1 complexes. Finally, we use deep sequencing to show that depletion of dicer-1 increases the diversity of small RNAs in AGO1, including some candidate mir-451-like loci. Altogether, we document unexpected aspects of miRNA biogenesis and Ago sorting, and provide insights into maturation of Argonaute-cleaved miRNA substrates.