Canonical animal microRNAs (miRNAs) are ∼22-nt regulatory RNAs generated by stepwise cleavage of primary hairpin transcripts by the Drosha and Dicer RNase III enzymes. We performed a genetic screen using an miRNA-repressed reporter in the Drosophila eye and recovered the first reported alleles of fly drosha, an allelic series of its dsRBD partner pasha, and novel alleles of dicer-1. Analysis of drosha mutants provided direct confirmation that mirtrons are independent of this nuclease, as inferred earlier from pasha knockouts. We further used these mutants to demonstrate in vivo cross-regulation of Drosha and Pasha in the intact animal, confirming remarkable conservation of a homeostatic mechanism that aligns their respective levels. Although the loss of core miRNA pathway components is universally lethal in animals, we unexpectedly recovered hypomorphic alleles that gave adult escapers with overtly normal development. However, the mutant photoreceptor neurons exhibited reduced synaptic transmission, without accompanying defects in neuronal development or maintenance. These findings indicate that synaptic function is especially sensitive to optimal miRNA pathway function. These allelic series of miRNA pathway mutants should find broad usage in studies of miRNA biogenesis and biology in the Drosophila system.