Nlrp1b is a NOD-like receptor that detects the catalytic activity of anthrax lethal toxin and subsequently co-oligomerizes into a pro-caspase-1 activation platform known as an inflammasome. Nlrp1b has two domains that promote oligomerization: a NACHT domain, which is a member of the AAA+ ATPase family, and a poorly characterized Function to Find Domain (FIIND). Here we demonstrate that proteolytic processing within the FIIND generates N-terminal and C-terminal cleavage products of Nlrp1b that remain associated in both the auto-inhibited state and in the activated state after cells have been treated with lethal toxin. Functional significance of cleavage was suggested by the finding that mutations that block processing of Nlrp1b also prevent the ability of Nlrp1b to activate pro-caspase-1. By using an uncleaved mutant of Nlrp1b, we established the importance of cleavage by inserting a heterologous TEV protease site into the FIIND and demonstrating that TEV protease processed this site and induced inflammasome activity. Proteolysis of Nlrp1b was shown to be required for the assembly of a functional inflammasome: a mutation within the FIIND that abolished cleavage had no effect on self-association of a FIIND-CARD fragment, but did reduce the recruitment of pro-caspase-1. Our work indicates that a post-translational modification enables Nlrp1b to function.