Heparanase is a heparan-sulfate-degrading endoglycosidase that has important roles in various biological processes, including angiogenesis, wound healing and metastatsis. Human heparanase is synthesized as a 65 kDa latent precursor, which is proteolytically processed into a highly active 50 kDa form. Extracellular heparanase is found in various tissues and is utilized by both normal cells and metastatic cancer cells to degrade heparan sulfate moieties in basement membranes and extracellular matrices. This study characterizes the processing and trafficking events associated with cellular activation of extracellular heparanase. We show that primary human fibroblasts are capable of binding and converting the 65 kDa heparanase precursor into its highly active 50 kDa form, concomitantly with its cytoplasmic accumulation. Heparanase uptake depends on the actin cytoskeleton integrity, resulting in a prolonged storage of the enzyme, mainly in endosomal structures. Heparanase endocytosis and its proteolytic activation are independent processes, indicating that heparanase cleavage is a cell surface event. Heparin completely inhibits heparanase endocytosis but only partially inhibits its association with the cells, suggesting that cell surface heparan sulfate moieties play a specific role in its endocytosis. Cellular binding and uptake of extracellular heparanase control its activation, clearance rate and storage within the cells.