Calcium-dependent cysteine proteases of the calpain family are modulatory proteases that cleave their substrates in a limited manner. Among their substrates, calpains target vertebrate and invertebrate IκB proteins. Because proteolysis by calpains potentially generates novel protein functions, it is important to understand how this affects NFκB activity. We investigate the action of Calpain A (CalpA) on the Drosophila melanogaster IκB homologue Cactus in vivo. CalpA alters the absolute amounts of Cactus protein. Our data indicate, however, that CalpA uses additional mechanisms to regulate NFκB function. We provide evidence that CalpA interacts physically with Cactus, recognizing a Cactus pool that is not bound to Dorsal, a fly NFκB/Rel homologue. We show that proteolytic cleavage by CalpA generates Cactus fragments lacking an N-terminal region required for Toll responsiveness. These fragments are generated in vivo and display properties distinct from those of full-length Cactus. We propose that CalpA targets free Cactus, which is incorporated into and modulates Toll-responsive complexes in the embryo and immune system.