The thyroglobulin type-1 (Tg-1) domain is a protein module that occurs in a variety of secreted and membrane proteins and is recognised as a potent inhibitor of cysteine peptidases. We present here some properties of the Tg-1 domain of human testican, a modularly organised proteoglycan secreted mainly by brain cells, the exact in vivo function of which is not yet clear. The domain was prepared as a recombinant protein in a Pichia pastoris expression system and its activity was demonstrated by specific and selective inhibition of cathepsin L (K(i) =0.14 nM). Interaction at high enzyme and inhibitor concentrations resulted in degradation of the domain by cathepsin L, which was not observed under conditions used for the determination of kinetic parameters. No inhibitory activity could be detected for cathepsin K, but it exhibited a very similar degradation pattern. Homology modelling provided a good explanation for the different behaviour observed with the two enzymes. Firstly, the steric fit between the interfaces of testican domain and cathepsin L is stabilised by numerous favourable forces, while no such interactions are evident in the complex with cathepsin K, and repulsive interactions even prevent access of the domain to the active site of papain. Secondly, the prolonged first loop of the domain occupies a position near the catalytic cysteine residue in a more substrate-like manner, enabling cleavage of the Gly22-Ala23 bond.