Malignant progression is accompanied by degradation of extracellular matrix proteins. Here we describe a novel confocal assay in which we can observe proteolysis by living human breast cancer cells (BT20 and BT549) through the use of quenched-fluorescent protein substrates. Degradation thus was imaged, by confocal optical sectioning, as an accumulation of fluorescent products. With the BT20 cells, fluorescence was localized to pericellular focal areas that coincide with pits in the underlying matrix. In contrast, fluorescence was localized to intracellular vesicles in the BT549 cells, vesicles that also label for lysosomal markers. Neither intracellular nor pericellular fluorescence was observed in the BT549 cells in the presence of cytochalasin B, suggesting that degradation occurred intracellularly and was dependent on endocytic uptake of substrate. In the presence of a cathepsin B-selective cysteine protease inhibitor, intracellular fluorescence was decreased approximately 90% and pericellular fluorescence decreased 67% to 96%, depending on the protein substrate. Matrix metallo protease inhibitors reduced pericellular fluorescence approximately 50%, i.e., comparably to a serine and a broad spectrum cysteine protease inhibitor. Our results suggest that: 1) a proteolytic cascade participates in pericellular digestion of matrix proteins by living human breast cancer cells, and 2) the cysteine protease cathepsin B participates in both pericellular and intracellular digestion of matrix proteins by living human breast cancer cells.