Heparanase is an endo-beta-D-glucuronidase involved in degradation of heparan sulfate (HS) and extracellular matrix (ECM) of a wide range of cells of vertebrate and invertebrate tissues. The enzymatic activity of heparanase is characterized by specific intrachain cleavage of glycosidic bonds with a hydrolase mechanism. This enzyme facilitates cell invasion and hence plays a role in tumor metastasis, angiogenesis, inflammation, and autoimmunity. Although the expression pattern and molecular properties of heparanase have been characterized, its subcellular localization has not been unequivocally determined. We have previously suggested that heparanase subcellular localization is a major determinant in regulating the enzyme's biological functions. In the present study we examined heparanase localization in three different cell types, utilizing immunofluorescent staining and electron microscopy. Our results indicate that heparanase is localized primarily within lysosomes and the Golgi apparatus. A construct composed of heparanase cDNA fused to green fluorescent protein, utilized in order to visualize the enzyme within living cells, confirmed its localization in acidic vesicles. We suggest that following synthesis, heparanase is transported into the Golgi apparatus and subsequently accumulates in a stable form within the lysosomes, where it functions in HS turnover. The lysosomal compartment may also serve as a site for heparanase confinement within the cells, limiting its secretion and uncontrolled extracellular activities associated with tumor metastasis and angiogenesis.