Hybrid insulin peptides (HIPs) form in pancreatic beta-cells through the formation of peptide bonds between proinsulin fragments and other peptides. HIPs, which have been confidently identified in pancreatic islets by mass spectrometry, are targeted by CD4 T cells in subjects with Type 1 Diabetes (T1D), as well as by disease-triggering CD4 T cell clones in non-obese diabetic (NOD) mice. The mechanism(s) of HIP formation are currently poorly understood; however, it is well established that proteases can drive the formation of new peptide bonds in a side reaction during peptide bond hydrolysis. Here, we used a proteomic strategy on enriched insulin granules and identified cathepsin D (CatD) as the primary protease driving the specific formation of HIPs that are targeted by disease-relevant CD4 T cells in T1D. We also established that NOD islets deficient of cathepsin L (CatL), another protease that was implied in the formation of disease-relevant HIPs, contain elevated levels of HIPs, signifying a primary role for CatL in the proteolytic degradation of HIPs. In summary, our data suggest that CatD may be a therapeutic target in efforts to prevent or slow down the autoimmune destruction of beta-cells mediated by HIP-reactive CD4 T cells in T1D.