Staphylococci produce autoinducing peptides (AIPs) as quorum-sensing signals that regulate virulence. These AIPs feature a thiolactone macrocycle that connects the peptide C terminus to the side chain of an internal cysteine. AIPs are processed from ribosomally synthesized precursors [accessory gene regulator D (AgrD)] through two proteolytic events. Formation of the thiolactone is coupled to the first of these and involves the activity of the integral membrane protease AgrB. This step is expected to be thermodynamically unfavorable, and therefore, it is unclear how AIP-producing bacteria produce sufficient amounts of the thiolactone-containing intermediate to drive quorum sensing. Herein, we present the in vitro reconstitution of the AgrB-dependent proteolysis of an AgrD precursor from Staphylococcus aureus. Our data show that efficient thiolactone production is driven by two unanticipated features of the system: (i) membrane association of the thiolactone-containing intermediate, which stabilizes the macrocycle, and (ii) rapid degradation of the C-terminal proteolysis fragment AgrD(C), which affects the reaction equilibrium position. Cell-based studies confirm the intimate link between AIP production and intracellular AgrD(C) levels. Thus, our studies explain the chemical principles that drive AIP production, including uncovering a hitherto unknown link between quorum sensing and peptide turnover.