The exogenous siRNA (exo-siRNA) pathway is a critical RNA interference response that controls arbovirus replication in mosquito cells. It is initiated by the detection of viral long double-stranded RNA (dsRNA) by the RNase III enzyme Dicer 2 (Dcr2), which is processed into predominantly 21 nucleotide (nt) virus-derived small interfering RNAs, or vsiRNAs that are taken up by the Argonaute 2 (Ago2) protein to target viral single-stranded RNAs. The detailed understanding of Dicer structure, function and domains owes much to studies outside the context of viral infection, and how Dcr2 domains contribute to detecting viral dsRNA to mount antiviral responses in infected mosquito cells remains much less understood. Here, we used a Dcr2 reconstitution system in Aedes aegypti derived Dcr2 KO cells to assess the contribution of the PAZ domain to induction of the exo-siRNA pathway following infection with Semliki Forest virus (SFV; Togaviridae, Alphavirus). Amino acids critical for PAZ activity were identified, and loss of PAZ function affected the production of 21 nt vsiRNAs -though not the overall ability of Dcr2 to process viral dsRNA- and silencing activity, and, importantly, also impacted the transfer of small RNAs to Ago2. This study establishes the importance of correct vsiRNA size in mosquito exo-siRNA antiviral responses, as well as the PAZ domain’s contribution to the Dcr2 processing of viral dsRNA to 21 nt vsiRNAs and targeting small RNAs into downstream processes of the exo-siRNA pathway.