An essential first step in the post-translational modification of proteins with UFM1, UFMylation, is the proteolytic cleavage of pro-UFM1 to expose a C-terminal glycine. Of the two UFM1-specific proteases (UFSPs) identified in humans, only UFSP2 is reported to be active, since the annotated sequence of UFSP1 lacks critical catalytic residues. Nonetheless, efficient UFM1 maturation occurs in cells lacking UFSP2, suggesting the presence of another active protease. We herein identify UFSP1 translated from a non-canonical start site to be this protease. Cells lacking both UFSPs show complete loss of UFMylation resulting from an absence of mature UFM1. While UFSP2, but not UFSP1, removes UFM1 from the ribosomal subunit RPL26, UFSP1 acts earlier in the pathway to mature UFM1 and cleave a potential autoinhibitory modification on UFC1, thereby controlling activation of UFMylation. In summary, our studies reveal important distinctions in substrate specificity and localization-dependent functions for the two proteases in regulating UFMylation.