Superparamagnetic iron oxide nanoparticles (IONPs) have been used as magnetic resonance imaging contrast agents for various research and diagnostic purposes, such as the detection of neuroinflammation and blood-brain-barrier integrity. As the central resident macrophage-like cells, microglia are responsible for managing foreign agents invading the CNS. The present study investigated the direct effect of IONPs on the production of pro-inflammatory cytokines by murine microglia stimulated with lipopolysaccharide (LPS). Primary murine microglial cells were pretreated with IONPs (1–50 μg Fe/mL) for 30 min and then stimulated with LPS (100 ng/mL) for 24 h. Confocal microscopy is used to visualize the intracellular IONP distribution and secretory lysosomes after staining with LysoTracker and Rab27a, respectively. The production of interleukin (IL)-1β and tumor necrosis factor (TNF)-α was quantified by ELISA. The activity of IL-1β converting enzyme (ICE) and TNF-α converting enzyme (TACE) was measured by fluorescent microplate assay using specific substrates. The lysosomal number, alkalinity, permeability and cathepsin B activity were determined by flow cytometry with ectodermal dysplasia-1, lysosensor and acridine orange staining, and using cathepsin B specific substrate, respectively. Confocal imaging revealed that IONPs were markedly engulfed by microglia. Exposure to IONPs attenuated the production of IL-1β, but not TNF-α. Concordantly, the activity of ICE, but not the TACE, was suppressed in IONP-treated cells. Mechanistic studies showed that IONPs accumulated in lysosomes and the number of lysosomes was increased in IONP-treated cells. In addition, exposure to IONPs increased lysosomal permeability and alkalinity, but decreased the activity of cathepsin B, a secretory lysosomal enzyme involved in the activation of ICE. Our results demonstrated a contrasting effect of IONPs on the production of IL-1β and TNF-α by LPS-stimulated microglia, in which the attenuation of IL-1β by IONPs was mediated by inhibiting the secretory lysosomal pathway of cytokine processing.