Ulcerative colitis (UC) is a chronic inflammatory bowel disease that is closely associated with colon cancer. Expression of the enzyme heparanase is clearly linked to colon carcinoma progression, but its role in UC is unknown. Here we demonstrate for what we believe to be the first time the importance of heparanase in sustaining the immune-epithelial crosstalk underlying colitis-associated tumorigenesis. Using histological specimens from UC patients and a mouse model of dextran sodium sulfate-induced colitis, we found that heparanase was constantly overexpressed and activated throughout the disease. We demonstrate, using heparanase-overexpressing transgenic mice, that heparanase overexpression markedly increased the incidence and severity of colitis-associated colonic tumors. We found that highly coordinated interactions between the epithelial compartment (contributing heparanase) and mucosal macrophages preserved chronic inflammatory conditions and created a tumor-promoting microenvironment characterized by enhanced NF-κB signaling and induction of STAT3. Our results indicate that heparanase generates a vicious cycle that powers colitis and the associated tumorigenesis: heparanase, acting synergistically with the intestinal flora, stimulates macrophage activation, while macrophages induce production (via TNF-α-dependent mechanisms) and activation (via secretion of cathepsin L) of heparanase contributed by the colon epithelium. Thus, disruption of the heparanase-driven chronic inflammatory circuit is highly relevant to the design of therapeutic interventions in colitis and the associated cancer.