Adenosine deaminases acting on RNA (ADARs) are involved in adenosine-to-inosine RNA editing and are implicated in development and diseases. Here we observed that ADAR1 deficiency in human embryonic stem cells (hESCs) significantly affected hESC differentiation and neural induction with widespread changes in mRNA and miRNA expression, including upregulation of self-renewal-related miRNAs, such as miR302s. Global editing analyses revealed that ADAR1 editing activity contributes little to the altered miRNA/mRNA expression in ADAR1-deficient hESCs upon neural induction. Genome-wide iCLIP studies identified that ADAR1 binds directly to pri-miRNAs to interfere with miRNA processing by acting as an RNA-binding protein. Importantly, aberrant expression of miRNAs and phenotypes observed in ADAR1-depleted hESCs upon neural differentiation could be reversed by an enzymatically inactive ADAR1 mutant, but not by the RNA-binding-null ADAR1 mutant. These findings reveal that ADAR1, but not its editing activity, is critical for hESC differentiation and neural induction by regulating miRNA biogenesis via direct RNA interaction.