Controlled macrophage differentiation and activation in the initiation and resolution of inflammation is crucial for averting progression to chronic inflammatory and autoimmune diseases. Here we show a negative feedback mechanism for proinflammatory IFN-γ activation of macrophages driven by macrophage-associated matrix metalloproteinase 12 (MMP12). Through C-terminal truncation of IFN-γ at 135Glu↓Leu136 the IFN-γ receptor-binding site was efficiently removed thereby reducing JAK-STAT1 signaling and IFN-γ activation of proinflammatory macrophages. In acute peritonitis this signature was absent in Mmp12^–/– mice and recapitulated in Mmp12^+/+ mice treated with a MMP12-specific inhibitor. Similarly, loss-of-MMP12 increases IFN-γ–dependent proinflammatory markers and iNOS⁺/MHC class II⁺ macrophage accumulation with worse lymphadenopathy, arthritic synovitis and lupus glomerulonephritis. In active human systemic lupus erythematosus, MMP12 levels were lower and IFN-γ higher compared to treated patients or healthy individuals. Hence, macrophage proteolytic truncation of IFN-γ attenuates classical activation of macrophages as a prelude for resolving inflammation.