The Drosophila Necrotic protein is a serine proteinase inhibitor, which regulates the Toll-mediated innate immune response. Necrotic specifically inhibits an extracellular serine proteinase cascade leading to activation of the Toll ligand, Spätzle. Necrotic carries a polyglutamine extension amino-terminal to the core serpin structure. We show here that cleavage of this N-terminal extension occurs following immune challenge. This modification is blocked in PGRP-SA(semmelweiss) mutants after Gram-positive bacterial challenge and in persephone mutants after fungal or Gram-positive bacterial challenge, indicating that activation of either of the Toll pathway upstream branches induces N-terminal cleavage of the serpin. The absolute requirement of persephone gene product for this cleavage indicates that Gram-positive bacteria activate a redundant set of proteinases upstream of Toll. Both full-length Necrotic and the core serpin are active inhibitors of a range of serine proteinases: the highest affinity being for cathepsin G and elastases. We found a 13-fold increase in the specificity of the core serpin over that of full-length Necrotic for one of the tested proteinases (porcine pancreatic elastase). This finding indicates that cleavage of the Necrotic amino-terminal extension might modulate Toll activation following the initial immune response.