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.