Axon degeneration is a central pathological feature of many neurodegenerative diseases. Sterile alpha and Toll/interleukin-1 receptor motif-containing 1 (SARM1) is a nicotinamide adenine dinucleotide (NAD)-cleaving enzyme whose activation triggers axon destruction. Loss of the biosynthetic enzyme NMNAT2, which converts nicotinamide mononucleotide (NMN) to NAD, activates SARM1 via an unknown mechanism. Using structural, biochemical, biophysical, and cellular assays, we demonstrate that SARM1 is activated by an increase in the ratio of NMN to NAD and show that both metabolites compete for binding to the auto-inhibitory N-terminal armadillo repeat (ARM) domain of SARM1. We report structures of the SARM1 ARM domain bound to NMN and of the homo-octameric SARM1 complex in the absence of ligands. We show that NMN influences the structure of SARM1 and demonstrate via mutagenesis that NMN binding is required for injury-induced SARM1 activation and axon destruction. Hence, SARM1 is a metabolic sensor responding to an increased NMN/NAD ratio by cleaving residual NAD, thereby inducing feedforward metabolic catastrophe and axonal demise.