In all organisms, proteases catalyse peptide-bond hydrolysis and mediate protein function for a multitude of cellular processes. Mechanistically, nothing prevents proteases from also catalysing peptide-bond ligation; however, this ‘reverse' reaction rarely is observed. In eukaryotes its presence has been viewed as an anomaly. Recent studies from plants and animals now challenge this assumption, indicating that protease-catalysed protein splicing is a bona fide post-translational modification. Increasing evidence indicates that the proximity of protein substrates, imposed either by their structure or by the physical constraints of the local environment, dictates when the splicing reaction will occur. This previously under-recognized splicing mechanism could increase intracellular protein diversity, thereby expanding the size of the proteome and sequence diversity beyond the predictions from genomic studies.