Lasso peptides are a class of ribosomally derived natural products with diverse bioactivities. The characteristic threaded lasso structure in these peptides derives from an isopeptide bond attaching the N-terminus of the peptide to an acidic side chain. Here we describe the heterologous expression of a lasso peptide gene cluster encoding two lasso peptides, astexin-2 and astexin-3, and solve the solution structure of astexin-3. This cluster also encodes an enzyme annotated as a protease. We show that this enzyme, AtxE2, is a lasso peptide isopeptidase that specifically hydrolyzes astexins-2 and -3, converting them to linear peptides. Astexin-3 is highly thermostable and resists unthreading after extensive heat treatment. In contrast, astexin-2 unthreads upon heat treatment. AtxE2 has no activity toward unthreaded astexin-2, demonstrating that this isopeptidase must recognize a knotted structure in order to function. We also use this isopeptidase as a tool to study evolutionary relationships between lasso peptide gene clusters.