Lanthanide-based nanoparticles (LNs) hold great promise in medicine. A variety of nanocrystals, including LNs, elicits potent inflammatory response through activation of NLRP3 inflammasome. We have previously identified an LNs-specific surface coating peptide RE-1, with the sequence of 'ACTARSPWICG', which reduced nanocrystal-cell interaction and abrogated LNs-induced autophagy and toxicity in both HeLa cells and liver hepatocytes. Here we show that RE-1 coating effectively inhibited LNs-induced inflammasome activation, mostly mediated by NLRP3, in mouse bone marrow derived macrophage (BMDM) cells, human THP-1cells and mouse peritoneal macrophages and also reduced LNs-elicited inflammatory response invivo. RE-1 coating had no effect on cellular internalization of LNs in BMDM cells, in contrast to the situation in HeLa cells where cell uptake of LNs was significantly inhibited by RE-1. To elucidate the molecular mechanism underlying the inflammasome-inhibiting effect of RE-1, we assessed several parameters known to influence nanocrystal-induced NLRP3 inflammasome activation. RE-1 coating did not reduce potassium efflux, which occurred after LNs treatment in BMDM cells and was necessary but insufficient for LNs-induced inflammasome activation. RE-1 did decrease lysosomal damage induced by LNs, but the inhibitor of cathepsin B did not affect LNs-elicited caspase 1 activation and IL-1β release, suggesting that lysosomal damage was not critically important for LNs-induced inflammasome activation. On the other hand, LNs-induced elevation of intracellular reactive oxygen species (ROS), critically important for inflammasome activation, was largely abolished by RE-1 coating, with the reduction on NADPH oxidase-generated ROS playing a more prominent role for RE-1's inflammasome-inhibiting effect than the reduction on mitochondria-generated ROS. ROS generation further triggered Ca(2+) influx, an event that was mediated by Transient Receptor Potential M2 (TRPM2) and was necessary for inflammasome activation, and this event was completely inhibited by RE-1 coating. We conclude from these studies that inhibition of ROS production, and the subsequent abrogation of TRPM2-mediated Ca(2+) influx, is the primary mechanism underlying RE-1's inhibitory effect on LNs-induced inflammasome activation. The ability of regulating the inflammatory response of nanocrystals through peptide surface coating may be of great value for invivo applications of LNs and other engineered nanomaterials.