The paracaspase MALT1 is pivotal in antigen receptor-mediated lymphocyte activation and lymphomagenesis. MALT1 contains a caspase-like domain, but it is unknown whether this domain is proteolytically active. Here we report that MALT1 had arginine-directed proteolytic activity that was activated after T cell stimulation, and we identify the signaling protein Bcl-10 as a MALT1 substrate. Processing of Bcl-10 after Arg228 was required for T cell receptor-induced cell adhesion to fibronectin. In contrast, MALT1 activity but not Bcl-10 cleavage was essential for optimal activation of transcription factor NF-kappaB and production of interleukin 2. Thus, the proteolytic activity of MALT1 is central to T cell activation, which suggests a possible target for the development of immunomodulatory or anticancer drugs.