In all forms of life, rRNAs for the small and large ribosomal subunit are co-transcribed as a single transcript. Although this ensures the equimolar production of rRNAs, it requires the endonucleolytic separation of pre-rRNAs to initiate rRNA production. In yeast, processing of the primary transcript encoding 18 S, 5.8 S, and 25 S rRNAs has been studied extensively. Nevertheless, most nucleases remain to be identified. Here, we show that Rcl1, conserved in all eukaryotes, cleaves pre-rRNA at so-called site A(2), a co-transcriptional cleavage step that separates rRNAs destined for the small and large subunit. Recombinant Rcl1 cleaves pre-rRNA mimics at site A(2) in a reaction that is sensitive to nearby RNA mutations that inhibit cleavage in vivo. Furthermore, mutations in Rcl1 disrupt rRNA processing at site A(2) in vivo and in vitro. Together, these results demonstrate that the role of Rcl1 in eukaryotic pre-rRNA processing is identical to that of RNase III in bacteria: to co-transcriptionally separate the pre-rRNAs destined for the small and large subunit. Furthermore, because Rcl1 has no homology to other known endonucleases, these data also establish a novel class of nucleases.