Giant cell tumor (GCT) of bone is a neoplasm of bone characterized by a localized osteolytic lesion. The nature of GCT is an enigma and the cell type(s) and protease(s) responsible for the extensive localized clinicoradiological osteolysis remain unresolved. We evaluated protease expression and cellular distribution of the proteolytic machinery responsible for the osteolysis. mRNA profiles showed that cathepsin K, cathepsin L, and matrix metalloproteinase (MMP)-9 were the preferentially expressed collagenases. Moderate expression was found for MMP-13, MMP-14, and cathepsin S. Specific protease activity assays revealed high cathepsin K activity but showed that MMP-9 was primarily present (98%) as inactive proenzyme. Activities of MMP-13 and MMP-14 were low. Immunohistochemistry revealed a clear spatial distribution: cathepsin K, its associated proton pump V-H(+)-ATPase, and MMP-9 were exclusively expressed in osteoclast-like giant cells, whereas cathepsin L expression was confined to mononuclear cells. To explore a possible role of cathepsin L in osteolysis, GCT-derived, cathepsin L-expressing, mononuclear cells were cultured on dentine disks. No evidence of osteolysis by these cells was found. These results implicate cathepsin K as the principal protease in GCT and suggest that osteoclast-like giant cells are responsible for the osteolysis. Inhibition of cathepsin K or its associated proton-pump may provide new therapeutic opportunities for GCT.