Modulation instability in fiber grating with nonlinearity management is studied based on the nonlinear coupledmode equations. The dispersion relation for modulation instability is obtained. Compared with normal nonlinear fiber grating, in the fiber grating with nonlinearity management the variance of Kerr nonlinearity alters the spectral width and amplitude of the gain spectrum for modulation instability, and leads to the occurrence of new ranges of instability. In the anomalous dispersion regime, the gain amplitude of two distinct sidelobes originally on either side of the zero wave number region diminishes to zero as the variance of Kerr nonlinearity increases, and a new single peak around zero wave number appears gradually after a region of zero gain; while in the normal dispersion regime, besides the original two gain regions, a new gain region occurs around the zero wave number region, and its gain amplitude increases as the nonlinearity management coefficient augments. As a result, the fiber grating with nonlinear management provides a larger space for the generation of modulation nonlinearity.