Heparanase is an endo-beta-glucuronodase involved in cleavage of heparan sulfate side chains, activity that is strongly implicated in cell dissemination associated with tumor metastasis and inflammation. Heparanase is first synthesized as a latent 65 kDa precursor that is converted into an active enzyme upon proteolytic processing. Previously, we have reported that elevation of the lysosomal pH results in complete inhibition of heparanase processing, suggesting that lysosomal protease(s) and acidic pH conditions are required for heparanase processing. Here, we adopted a cell fractionation approach and provide evidence that incubation of the pro-enzyme with lysosome/endosome, but not with cytoplasmic fractions resulted in processing and activation of the 65 kDa latent heparanase. Moreover, while the water soluble lysosome/endosome fraction exhibited no apparent processing activity, heparanase processing by the water insoluble lysosome/endosome membrane fraction was readily detected and exhibited the expected pH dependency.