When shed from the cell surface, the heparan sulfate proteoglycan syndecan-1 can facilitate the growth, angiogenesis, and metastasis of tumors. Here we report that tumor cell expression of heparanase, an enzyme known to be a potent promoter of tumor progression and metastasis, regulates both the level and location of syndecan-1 within the tumor microenvironment by enhancing its synthesis and subsequent shedding from the tumor cell surface. Heparanase regulation of syndecan-1 is detected in both human myeloma and breast cancer cell lines. This regulation requires the presence of active enzyme, because mutated forms of heparanase lacking heparan sulfate-degrading activity failed to influence syndecan-1 expression or shedding. Removal of heparan sulfate from the cell surface using bacterial heparitinase dramatically accelerated syndecan-1 shedding, suggesting that the effects of heparanase on syndecan-1 expression by tumor cells may be due, at least in part, to enzymatic removal or reduction in the size of heparan sulfate chains. Animals bearing tumors formed from cells expressing high levels of heparanase or animals transgenic for heparanase expression exhibited elevated levels of serum syndecan-1 as compared with controls, indicating that heparanase regulation of syndecan-1 expression and shedding can occur in vivo and impact cancer progression and perhaps other pathological states. These results reveal a new mechanism by which heparanase promotes an aggressive tumor phenotype and suggests that heparanase and syndecan-1 act synergistically to fine tune the tumor microenvironment and ensure robust tumor growth.