Bone metastasis is a hallmark of advanced prostate and breast cancers, yet the critical factors behind attraction of tumors to the skeleton have not been validated. Here, we investigated the involvement of cathepsin K in the progression of prostate tumors in the bone, which occurs both by direct degradation of bone matrix collagen I and by cleavage of other factors in the bone microenvironment. Our results demonstrated that bone marrow-derived cathepsin K is capable of processing and thereby modulating SPARC, a protein implicated in bone metastasis and inflammation. The coincident up-regulation of SPARC and cathepsin K occurred both in vivo in experimental prostate bone tumors, and in vitro in co-cultures of bone marrow stromal cells with PC3 prostate carcinoma cells. PC3-bone marrow stromal cell interaction increased secretion and processing of SPARC, as did co-cultures of bone marrow stromal cells with two other cancer cell lines. In addition, bone marrow stromal cells that were either deficient in cathepsin K or treated with cathepsin K inhibitors had significantly reduced secretion and cleavage of SPARC. Increases in secretion of pro-inflammatory cytokines (ie, interleukin-6, -8) coincident with overexpression of cathepsin K suggest possible mechanisms by which this enzyme contributes to tumor progression in the bone. This is the first study implicating bone marrow cathepsin K in regulation of biological activity of SPARC in bone metastasis.