The cell surface heparan sulfate proteoglycan syndecan-1 is induced in stromal fibroblasts of breast carcinomas and participates in a reciprocal feedback loop, which stimulates carcinoma cell growth in vitro and in vivo. To define the molecular mechanism of carcinoma growth stimulation, a three-dimensional co-culture model was developed that combines T47D breast carcinoma cells with immortalized human mammary fibroblasts in collagen gels. By silencing endogenous syndecan-1 induction with short interfering RNA and expressing mutant murine syndecan-1 constructs, it was determined that carcinoma cell mitogenesis required proteolytic shedding of syndecan-1 from the fibroblast surface. The paracrine growth signal was mediated by the syndecan-1 heparan lfate chains rather than the ectodomain of the core protein and required fibroblast growth factor 2 and stroma-derived factor 1. This paracrine pathway may provide an opportunity for the therapeutic disruption of stromaepithelial signaling.