The catalytic activity of the protease MALT1 is required for adaptive immune responses and regulatory T (Treg)-cell development, while dysregulated MALT1 activity can lead to lymphoma. MALT1 activation requires its monoubiquitination on lysine 644 (K644) within the Ig3 domain, localized adjacent to the protease domain. The molecular requirements for MALT1 monoubiquitination and the mechanism by which monoubiquitination activates MALT1 had remained elusive. Here, we show that the Ig3 domain interacts directly with ubiquitin and that an intact Ig3-ubiquitin interaction surface is required for the conjugation of ubiquitin to K644. Moreover, by generating constitutively active MALT1 mutants that overcome the need for monoubiquitination, we reveal an allosteric communication between the ubiquitination site K644, the Ig3-protease interaction surface, and the active site of the protease domain. Finally, we show that MALT1 mutants that alter the Ig3-ubiquitin interface impact the biological response of T cells. Thus, ubiquitin binding by the Ig3 domain promotes MALT1 activation by an allosteric mechanism that is essential for its biological function.