As part of the innate immune defense against HIV infection, OTK18, a zinc finger protein, is upregulated in human macrophages and reduces viral replication through suppression of viral long-terminal repeat promoter activity. Although we know that the processing products of OTK18 accumulate in the cytoplasm of brain perivascular macrophages in advanced HIV encephalitis cases, the molecular mechanisms behind its post-translational processing are still poorly understood. To characterize OTK18 processing, we assessed a panel of protease inhibitors to identify the candidates involved in the OTK18 processing using human monocyte-derived macrophages (MDM) overexpressing OTK18 by recombinant adenoviral gene transfer. Viral infection of MDM strongly increased the processing of OTK18 into its N-terminal fragment. Treatment of OTK18-expressing MDM with calpain and proteasome inhibitors significantly accumulated either full-length or processed OTK18 fragments in time- and dose-dependent manners. A series of OTK18 truncation mutants and synthetic peptides were tested to locate the calpain cleavage sites after arginine 359. Finally, we developed an enhanced cyan and yellow fluorescent protein (ECFP and EYFP)-based intramolecular fluorescent resonance energy transfer (intramolecular FRET) system to monitor the OTK18 endoproteolysis in human microglia cell line. Inhibition of proteasome activity significantly increased the intramolecular FRET signal in the nucleus. These data suggest that calpain and proteasome are involved in OTK18 endoproteolysis and degradation. Additionally, intramolecular FRET has proven to be a useful tool for monitoring the processing in live cells.