ADAR RNA editing enzymes are high-affinity dsRNA-binding proteins that deaminate adenosines to inosines in pre-mRNA hairpins and also exert editing-independent effects. We generated a Drosophila AdarE374A mutant strain encoding a catalytically inactive Adar with CRISPR/Cas9. We demonstrate that Adar adenosine deamination activity is necessary for normal locomotion and prevents age-dependent neurodegeneration. The catalytically inactive protein, when expressed at a higher than physiological level, can rescue neurodegeneration in Adar mutants, suggesting also editing-independent effects. Furthermore, loss of Adar RNA editing activity leads to innate immune induction, indicating that Drosophila Adar, despite being the homolog of mammalian ADAR2, also has functions similar to mammalian ADAR1. The innate immune induction in fly Adar mutants is suppressed by silencing of Dicer-2, which has a RNA helicase domain similar to MDA5 that senses unedited dsRNAs in mammalian Adar1 mutants. Our work demonstrates that the single Adar enzyme in Drosophila unexpectedly has dual functions.