The X-linked inhibitor of apoptosis protein (XIAP) uses its second baculovirus IAP repeat domain (BIR2) to inhibit the apoptotic executioner caspase-3 and -7. Structural studies have demonstrated that it is not the BIR2 domain itself but a segment N-terminal to it that directly targets the activity of these caspases. These studies failed to demonstrate a role of the BIR2 domain in inhibition. We used site-directed mutagenesis of BIR2 and its linker to determine the mechanism of executioner caspase inhibition by XIAP. We show that the BIR2 domain contributes substantially to inhibition of executioner caspases. A surface groove on BIR2, which also binds to Smac/DIABLO, interacts with a neoepitope generated at the N-terminus of the caspase small subunit following activation. Therefore, BIR2 uses a two-site interaction mechanism to achieve high specificity and potency for inhibition. Moreover, for caspase-7, the precise location of the activating cleavage is critical for subsequent inhibition. Since apical caspases utilize this cleavage site differently, we predict that the origin of the death stimulus should dictate the efficiency of inhibition by XIAP.