Toll-like receptors (TLRs) initiate immune responses by recognizing pathogen-associated molecules, but the molecular basis for recognition is poorly understood. In particular, it is unclear how receptor-ligand interactions lead to the initiation of downstream signaling. Here, we describe the mechanism by which TLR3 recognizes its ligand, double-stranded RNA (dsRNA), and forms an active signaling complex. We show that dsRNA binds saturably, specifically, and reversibly to a defined ligand-binding site (or sites) on the TLR3 ectodomain (TLR3ecd). Binding affinities increase with both buffer acidity and ligand size. Purified TLR3ecd protein is exclusively monomeric in solution, but through a highly cooperative process, it forms dimers when bound to dsRNA, and multiple TLR3ecd dimers bind to long dsRNA strands. The smallest dsRNA oligonucleotides that form stable complexes with TLR3ecd (40-50 bp) each bind one TLR3ecd dimer, and these are also the smallest oligonucleotides that efficiently activate TLR3 in cells. We conclude that TLR3 assembles on dsRNA as stable dimers and that the minimal signaling unit is one TLR3 dimer.