Argonaute (AGO) proteins bind to small RNAs and mediate small RNA−induced silencing in eukaryotes. Using a minimal in vitro system, we show that bacterially expressed human AGO1 and AGO2 but not AGO3 and AGO4 possess strand-dissociating activity of microRNA (miRNA) duplexes. Both AGO1 and AGO2 function as RNA chaperones, capable of performing multiple rounds of strand dissociation. Unexpectedly, both AGO1 and AGO2 demonstrate passenger strand cleavage activity of a small interfering RNA (siRNA) duplex, but only AGO2 has target RNA cleavage activity. These observations indicate that passenger strand and mRNA endonuclease activities are mechanistically distinct. We further validate these observations in mammalian extracts and cultured mammalian cells, in which we demonstrate that AGO1 uses only miRNA duplexes when assembling translational repression−competent complexes, whereas AGO2 can use both miRNA and siRNA duplexes. We show that passenger strand cleavage and RNA chaperone activities that are intrinsic to both AGO1 and AGO2 are sufficient for RNA-induced silencing complex (RISC) loading.