Lariat RNAs formed as by-products of splicing are quickly degraded by the RNA debranching enzyme 1 (DBR1), leading to their turnover. Null dbr1 mutants in both animals and plants are embryo lethal, but the mechanism underlying the lethality remains unclear. Here we characterized a weak mutant allele of DBR1 in Arabidopsis, dbr1-2, and showed that a global increase in lariat RNAs was unexpectedly accompanied by a genome-wide reduction in miRNA accumulation. The dbr1-2 mutation had no effects on expression of miRNA biogenesis genes or primary miRNAs (pri-miRNAs), but the association of pri-miRNAs with the DCL1/HYL1 dicing complex was impaired. Lariat RNAs were associated with the DCL1/HYL1 dicing complex in vivo and competitively inhibited the binding of HYL1 with pri-miRNA. Consistent with the impacts of lariat RNAs on miRNA biogenesis, over-expression of lariat RNAs reduced miRNA accumulation. Lariat RNAs localized in nuclear bodies, and partially co-localize with HYL1, and both DCL1 and HYL1 were mis-localized in dbr1-2. Together with our findings that nearly four hundred lariat RNAs exist in wild type plants and that these lariat RNAs also associate with the DCL1/HYL1 dicing complex in vivo, we thus propose that lariat RNAs, as decoys, inhibit miRNA processing, suggesting a hitherto unknown layer of regulation in miRNA biogenesis.