Some members of the inhibitor of apoptosis (IAP) family suppress apoptosis by neutralizing caspases. The current model suggests that all caspase-regulatory IAPs function as direct enzyme inhibitors, blocking effector caspases by binding to their catalytically active pockets. Here we show that IAPs are functionally non-equivalent and regulate effector caspases through distinct mechanisms. Whereas XIAP binds directly to the active-site pockets of effector caspases, we find that regulation of effector caspases by Drosophila IAP1 (DIAP1) requires an evolutionarily conserved IAP-binding motif (IBM) at the neo-amino terminus of the large caspase subunit. Remarkably, unlike XIAP, DIAP1-sequestered effector caspases remain catalytically active, suggesting that DIAP1 does not function as a bona fide enzyme inhibitor. Moreover, we demonstrate that the mammalian IAP c-IAP1 interacts with caspase-7 in an exclusively IBM-dependent, but active site pocket-independent, manner that is mechanistically similar to DIAP1. The importance of IBM-mediated regulation of effector-caspases in vivo is substantiated by the enhanced apoptotic potency of IBM-mutant versions of drICE, DCP-1 and caspase-7.