Cathepsin K has emerged as a promising target for the treatment of osteoporosis in recent years. Initially identified as a papain-like cysteine peptidase expressed in high levels in osteoclasts, the important role of this enzyme in bone metabolism was highlighted by the finding that mutations in the CTSK gene cause the rare recessive disorder pycnodysostosis, which is characterized by severe bone anomalies. At the molecular level, the physiological role of cathepsin K is reflected by its unique cleavage pattern of type I collagen molecules, which is fundamentally different from that of other endogenous collagenases. Several cathepsin K inhibitors have been developed to reduce the excessive bone matrix degradation associated with osteoporosis, with the frontrunner odanacatib about to successfully conclude Phase 3 clinical trials. Apart from osteoclasts, cathepsin K is expressed in different cell types throughout the body and is involved in processes of adipogenesis, thyroxine liberation and peptide hormone regulation. Elevated activity of cathepsin K has been associated with arthritis, atherosclerosis, obesity, schizophrenia, and tumor metastasis. Accordingly, its activity is tightly regulated via multiple mechanisms, including competitive inhibition by endogenous macromolecular inhibitors and allosteric regulation by glycosaminoglycans. This review provides a state-of-the-art description of the activity of cathepsin K at the molecular level, its biological functions and the mechanisms involved in its regulation.