Caspases have been extensively studied as critical initiators and executioners of cell death pathways. However, caspases also take part in non-apoptotic signalling events such as the regulation of innate immunity and activation of nuclear factor-kappaB (NF-kappaB). How caspases are activated under these conditions and process a selective set of substrates to allow NF-kappaB signalling without killing the cell remains largely unknown. Here, we show that stimulation of the Drosophila pattern recognition protein PGRP-LCx induces DIAP2-dependent polyubiquitylation of the initiator caspase DREDD. Signal-dependent ubiquitylation of DREDD is required for full processing of IMD, NF-kappaB/Relish and expression of antimicrobial peptide genes in response to infection with Gram-negative bacteria. Our results identify a mechanism that positively controls NF-kappaB signalling via ubiquitin-mediated activation of DREDD. The direct involvement of ubiquitylation in caspase activation represents a novel mechanism for non-apoptotic caspase-mediated signalling.