The mitochondrial rhomboid protease Parl governs apoptosis, morphology, metabolism and might be implicated in Parkinson's disease, but the structural basis of its activity and complex regulation remain unknown. We report the discovery of γ-cleavage, a proteolytic event on the loop connecting the first transmembrane helix (TMH) of Parl to the 6-TMH catalytic rhomboid domain of the protease. This cleavage disrupts the '1+6' structure that defines every mitochondrial rhomboid and generates a new form of Parl, PROD (Parl-rhomboid-domain). Structure-function analysis of Parl suggests that γ-cleavage could be implicated in eliminating Parl proteolytic activity, and structural modeling of PROD reveals structural conservation with the bacterial rhomboid GlpG. However, unlike bacterial rhomboids, which employ a diad-based mechanism of catalysis, Parl appears to use a conserved mitochondrial rhomboid-specific Asp residue on TMH-5 in a triad-based mechanism of catalysis. This work provides unexpected insights into the structural determinants regulating Parl stability and activity in vivo, and reveals a complex cascade of proteolytic events controlling the function of the protease in the mitochondrion.