M-CSF-driven differentiation of peripheral blood monocytes is one of the sources of tissue macrophages. In humans and mice, the differentiation process involves the activation of caspases that cleave a limited number of proteins. One of these proteins is nucleophosmin (NPM1), a multifunctional and ubiquitous protein. Here, we show that caspases activated in monocytes exposed to M-CSF cleave NPM1 at D213 to generate a 30-kDa N-terminal fragment. The protein is further cleaved into a 20-kDa fragment, which involves cathepsin B. NPM1 fragments contribute to the limited motility, migration, and phagocytosis capabilities of resting macrophages. Their activation with lipopolysaccharides inhibits proteolytic processes and restores expression of the full-length protein that negatively regulates the transcription of genes encoding inflammatory cytokines (eg, NPM1 is recruited with NF-κB on the MCP1 gene promoter to decrease its transcription). In mice with heterozygous npm gene deletion, cytokine production in response to lipopolysaccharides, including CXCL1 (KC), MCP1, and MIP2, is dramatically enhanced. These results indicate a dual function of NPM1 in M-CSF-differentiated macrophages. Proteolysis of the protein participates in the establishment of a mature macrophage phenotype. In response to inflammatory stimuli, the full-length protein negatively regulates inflammatory cytokine production.