Tau proteins are abnormally aggregated in a range of neurodegenerative tauopathies including Alzheimer's disease (AD). Recently, tau has emerged as an extensively post-translationally modified protein, among which lysine acetylation is critical for normal tau function and its pathological aggregation. Here, we demonstrate that tau isoforms have different propensities to undergo lysine acetylation, with auto-acetylation occurring more prominently within the lysine-rich microtubule-binding repeats. Unexpectedly, we identified a unique intrinsic property of tau in which auto-acetylation induces proteolytic tau cleavage, thereby generating distinct N- and C-terminal tau fragments. Supporting a catalytic reaction-based mechanism, mapping and mutagenesis studies showed that tau cysteines, which are required for acetyl group transfer, are also essential for auto-proteolytic tau processing. Further mass spectrometry analysis identified the C-terminal 2nd and 4th microtubule binding repeats as potential sites of auto-cleavage. The identification of acetylation-mediated auto-proteolysis provides a new biochemical mechanism for tau self-regulation and warrants further investigation into whether auto-catalytic functions of tau are implicated in AD and other tauopathies.