Circular RNAs (circRNAs) produced from back-splicing of exons of pre-mRNAs are widely expressed, but current understanding of their functions is limited. These RNAs are stable in general and are thought to have unique structural conformations distinct from their linear RNA cognates. Here, we show that endogenous circRNAs tend to form 16–26 bp imperfect RNA duplexes and act as inhibitors of double-stranded RNA (dsRNA)-activated protein kinase (PKR) related to innate immunity. Upon poly(I:C) stimulation or viral infection, circRNAs are globally degraded by RNase L, a process required for PKR activation in early cellular innate immune responses. Augmented PKR phosphorylation and circRNA reduction are found in peripheral blood mononuclear cells (PBMCs) derived from patients with autoimmune disease systemic lupus erythematosus (SLE). Importantly, overexpression of the dsRNA-containing circRNA in PBMCs or T cells derived from SLE can alleviate the aberrant PKR activation cascade, thus providing a connection between circRNAs and SLE. Display omitted •circRNAs are globally degraded by activated RNase L upon viral infection•Many circRNAs tend to form 16–26 bp duplexes and act as endogenous PKR inhibitors•The RNase L-mediated circRNA degradation is required for PKR activation•circRNA reduction and aberrant PKR activation are found in autoimmune disease SLE The unique structure of circRNAs allows them to bind and regulate the innate immune dsRNA receptor PKR, and misregulation of this process is found in patients with autoimmune disease.