ABSTRACT Interest in extrachromosomal circular DNA (eccDNA) molecules has increased recently because of their widespread presence in normal cells across every species ranging from yeast to humans, their increased levels in cancer cells, and their overlap with oncogenic and drug-resistant genes. However, the majority of eccDNA (microDNA) are too small to carry protein coding genes. We have tested functional capabilities of microDNA, by creating artificial microDNA molecules mimicking known microDNA sequences and have discovered that they express functional small regulatory RNA including microRNA and novel si-like RNA. MicroDNA is transcribed in vitro and in vivo independent of a canonical promoter sequence. MicroDNA which carry miRNA genes form transcripts which are processed into mature miRNA molecules, through the endogenous RNA-interference pathway, which repress a luciferase reporter gene as well as endogenous mRNA targets of the miRNA. Further, microDNA containing sequences of exons repress the endogenous gene from which the microDNA was derived through the formation of novel si-like RNA. We also show that endogenous microDNA associate with RNA polymerases subunits POLR2H and POLR3F. Together, these results suggest that microDNA may modulate gene expression through the production of both known and novel regulatory small RNA.