Insulin-like growth factor-binding protein-3 (IG-FBP-3) is an important member of a family of proteins which binds IGF peptides and modulates their biological actions. In this study, we describe an acid-activated IGFBP-3 protease in media derived from a variety of human cell lines. Radiolabeled IGFBP-3 remained intact during incubation (pH 5.5-8) in media conditioned by normal and transformed human fibroblasts, MG-63 osteoblastic cells, and breast cancer cell lines MCF-7 and Hs578T. However, acidification of the conditioned medium samples (pH < 5.5) resulted in 125I-IGFBP-3 hydrolysis and the appearance of specific radiolabeled fragments. No proteolysis of 125I-IGFBP-3 occurred during incubation in unconditioned medium at neutral or acid pH. Estrogen treatment of estrogen receptor-positive MCF-7 cells enhanced acid-activatable IGFBP-3 proteolysis in the cell-conditioned medium but had no effect on proteolytic activity in estrogen receptor-negative Hs578T cells. The cell-derived IGFBP-3 protease was identified as the aspartic proteinase cathepsin D, based on acidic pH optimum, inhibition by pepstatin, distinctive proteolytic fragment pattern, and immunoreactivity with cathepsin D antisera. Furthermore, immuno-depletion of cathepsin D effectively attenuated acid-activated IGFBP-3 proteolysis. These data suggest a role for cathepsin D in the regulation of cellular IGF action by virtue of its potential to alter the structure/function of IGFBP-3.