Systemic lupus erythematosus (SLE) is an autoimmune disease with heterogeneous manifestations including severe organ damage and vascular dysfunction leading to premature atherosclerosis. IFN-α has been proposed to have an important role in the development of lupus and lupus-related cardiovascular disease, partly by repression of IL-1 pathways leading to impairments in vascular repair induced by endothelial progenitor cells (EPCs) and circulating angiogenic cells (CACs). Counterintuitively, SLE patients also display transcriptional upregulation of the IL-1β/IL-18 processing machinery, the inflammasome. To understand this dichotomy and its impact on SLE-related cardiovascular disease, we examined cultures of human and murine control or lupus EPC/CACs to determine the role of the inflammasome in endothelial differentiation. We show that caspase-1 inhibition improves dysfunctional SLE EPC/CAC differentiation into mature endothelial cells and blocks IFN-α-mediated repression of this differentiation, implicating inflammasome activation as a crucial downstream pathway leading to aberrant vasculogenesis. Furthermore, serum IL-18 levels are elevated in SLE and correlate with EPC/CAC dysfunction. Exogenous IL-18 inhibits endothelial differentiation in control EPC/CACs and neutralization of IL-18 in SLE EPC/CAC cultures restores their capacity to differentiate into mature endothelial cells, supporting a deleterious effect of IL-18 on vascular repair in vivo. Upregulation of the inflammasome machinery was operational in vivo, as evidenced by gene array analysis of lupus nephritis biopsies. Thus, the effects of IFN-α are complex and contribute to an elevated risk of cardiovascular disease by suppression of IL-1β pathways and by upregulation of the inflammasome machinery and potentiation of IL-18 activation.