We have previously described a specific, saturable receptor for rat collagenase-3 in the rat osteosarcoma cell line, UMR 106-01. Binding of rat collagenase-3 to this receptor is coupled to the internalization and eventual degradation of the enzyme and correlates with observed extracellular levels of the enzyme. In this study we have shown that decreased binding, internalization, and degradation of 125I-rat collagenase-3 were observed in cells after 24 h of parathyroid hormone treatment; these activities returned to control values after 48 h and were increased substantially (twice control levels) after 96 h of treatment with the hormone. Subcellular fractionation studies to identify the route of uptake and degradation of collagenase-3 localized intracellular accumulation of 125I-rat collagenase-3 initially in Golgi-associated lysosomes and later in secondary lysosomes. Maximal lysosomal accumulation of the radiolabel and stimulation of general lysosomal activity occurred after 72 h of parathyroid hormone treatment. Preventing fusion of endosomes with lysosomes (by temperature shift, colchicine, or monensin) resulted in no internalized 125I-collagenase-3 in either lysosomal fraction. Treatment of UMR cells with the above agents or ammonium chloride decreased excretion of 125I-labeled degradation products of collagenase-3. These experiments demonstrated that degradation of collagenase-3 required receptor-mediated endocytosis and sequential processing by endosomes and lysosomes. Thus, parathyroid hormone regulates the expression and synthesis of collagenase-3 as well as the abundance and functioning of the collagenase-3 receptor and the intracellular degradation of its ligand. The coordinate changes in the secretion of collagenase-3 and expression of the receptor determine the net abundance of the enzyme in the extracellular space.