Type 1 diabetes (T1D) is an autoimmune disease targeting pancreatic beta cells. Genome-wide association studies and gene expression analysis identified interferon (IFN)-driven gene networks as crucial pathways in the pathogenesis of T1D. IFNs are linked to the response to viral infections and might contribute to the initiation of the autoimmune process in T1D. We presently analyzed the role of ubiquitin-specific peptidase 18 (USP18), an interferon-stimulated gene 15-specific protease, on IFN-induced pancreatic beta cell inflammation and apoptosis. Our findings indicate that USP18 inhibition induces inflammation by increasing the STAT signaling and exacerbates IFN-induced beta cell apoptosis by the mitochondrial pathway of cell death. USP18 regulates activation of three BH3-only proteins, namely, DP5, Bim and PUMA in pancreatic beta cells, suggesting a direct link between regulators of the type I IFN signaling pathway and members of the BCL-2 family. USP18 depletion increases the expression of the T1D candidate gene MDA5, leading to an upregulation of double-stranded RNA-induced chemokine production. These data suggest a cross talk between the type I IFN signaling pathway and a candidate gene for T1D to increase pro-inflammatory responses in beta cells. The present study shows that USP18 is a key regulator of IFN signaling in beta cells and underlines the importance of this pathway in beta cell inflammation and death.