Lysosomal cathepsin B has been implicated in parasitic, inflammatory and neoplastic diseases. Most of these pathologies suggest a role for cathepsin B outside the cells, although the origin of extracellular active enzyme is not well defined. The activity of extracellular cathepsin B is difficult to assess because of the presence of inhibitors and inactivation of the enzyme by oxidizing agents. Therefore, we have developed a continuous assay for measurement of cathepsin B activity produced pericellularly by living cells. The kinetic rate of Z-Arg-Arg-NHMec conversion was monitored and the assay optimized for enzyme stability, cell viability and sensitivity. To validate the assay, we determined that human liver cathepsin B was stable and active under the conditions of the assay and its activity could be inhibited by the selective epoxide derivative CA-074. Via this assay, we were able to demonstrate that active cathepsin B was secreted pericellularly by viable cells. Both preneoplastic and malignant cells secreted active cathepsin B. Pretreatment of cells with the membrane-permeant proinhibitor CA-074Me completely abolished pericellular and total cathepsin B activity whereas pretreatment with the active drug CA-074 had no effect. Immunoprecipitation and immunoblotting experiments suggested that the active enzyme species was 31-kDa single-chain cathepsin B. Exocytosis of cathepsin B was not related to secretion of proenzyme or secretion from mature lysosomes. Our results suggest an alternative pathway for exocytosis of active cathepsin B.