Although XRN2 proteins are highly conserved eukaryotic 5'→3' exonucleases, little is known about their function in animals. Here, we characterize Caenorhabditis elegans XRN2, which we find to be a broadly and constitutively expressed nuclear protein. An xrn-2 null mutation or loss of XRN2 catalytic activity causes a molting defect and early larval arrest. However, by generating a conditionally mutant xrn-2ts strain de novo through an approach that may be also applicable to other genes of interest, we reveal further functions in fertility, during embryogenesis and during additional larval stages. Consistent with the known role of XRN2 in controlling microRNA (miRNA) levels, we can demonstrate that loss of XRN2 activity stabilizes some rapidly decaying miRNAs. Surprisingly, however, other miRNAs continue to decay rapidly in xrn-2ts animals. Thus, XRN2 has unanticipated miRNA specificity in vivo, and its diverse developmental functions may relate to distinct substrates. Finally, our global analysis of miRNA stability during larval stage 1 reveals that miRNA passenger strands (miR*s) are substantially less stable than guide strands (miRs), supporting the notion that the former are mostly byproducts of biogenesis rather than a less abundant functional species.