The present invention pertains to an N-terminally truncated interleukin (IL)-38 protein, or functional variants thereof, as well as to nucleic acids and vectors encoding the truncated IL-38 peptide and recombinant cells comprising these nucleic acids or vectors. The invention shows that IL-38 is N-terminally processed and that the truncated version of the cytokine acts as an antagonist of immune activation in macrophages. This indicates a use of the truncated cytokine in the treatment and prevention of autoimmune disorders. The invention further provides pharmaceutical compositions comprising the truncated IL-38 protein, and method for screening modulators of the function of truncated IL-38.