Transcription elongation is increasingly recognized as an important mechanism of gene regulation. Here, we show that microprocessor controls gene expression in an RNAi-independent manner. Microprocessor orchestrates the recruitment of termination factors Setx and Xrn2, and the 3'-5' exoribonuclease, Rrp6, to initiate RNAPII pausing and premature termination at the HIV-1 promoter through cleavage of the stem-loop RNA, TAR. Rrp6 further processes the cleavage product, which generates a small RNA that is required to mediate potent transcriptional repression and chromatin remodeling at the HIV-1 promoter. Using chromatin immunoprecipitation coupled to high-throughput sequencing (ChIP-seq), we identified cellular gene targets whose transcription is modulated by microprocessor. Our study reveals RNAPII pausing and premature termination mediated by the co-operative activity of ribonucleases, Drosha/Dgcr8, Xrn2, and Rrp6, as a regulatory mechanism of RNAPII-dependent transcription elongation.