The developmentally regulated RNA binding protein Lin28 blocks processing of let-7 family microRNAs (miRNAs) in embryonic cells. The molecular basis for this selective miRNA processing block is unknown. Here we find that Lin28 selectively binds the terminal loop region of let-7 precursors in vitro, and that the loop mediates miRNA processing inhibition in vivo. Additionally, we identify the domains of Lin28 required for this inhibition. These findings establish a regulatory role for the terminal loop of precursors in miRNA maturation and provide insight into the mechanism by which Lin28 negatively regulates let-7 processing.