MALT1 is the only known paracaspase and is a critical mediator of B- and T-cell receptor signalling. The function of the MALT1 gene is subverted by oncogenic chimeric fusions arising from the recurrent t(11;18)(q21;q21) aberration, which is the most frequent translocation in mucosa-associated lymphoid tissue (MALT) lymphoma. API2-MALT1-positive MALT lymphomas manifest antibiotic resistance and aggressive clinical behaviour with poor clinical outcome. However, the mechanisms underlying API2-MALT1-induced MALT lymphomagenesis are not fully understood. Here we show that API2-MALT1 induces paracaspase-mediated cleavage of the tumour suppressor protein LIMA1. LIMA1 binding by API2-MALT1 is API2 dependent and proteolytic cleavage is dependent on MALT1 paracaspase activity. Intriguingly, API2-MALT1-mediated proteolysis generates a LIM domain-only (LMO)-containing fragment with oncogenic properties in vitro and in vivo. Importantly, primary MALT lymphomas harbouring the API2-MALT1 fusion uniquely demonstrate LIMA1 cleavage fragments. Our studies reveal a novel paracaspase-mediated oncogenic gain-of-function mechanism in the pathogenesis of MALT lymphoma.