The cysteine protease cathepsin S is highly expressed in malignant tissues. By using a mouse model of multistage murine pancreatic islet cell carcinogenesis in which cysteine cathepsin activity has been functionally implicated, we demonstrated that selective cathepsin S deficiency impaired angiogenesis and tumor cell proliferation, thereby impairing angiogenic islet formation and the growth of solid tumors, whereas the absence of its endogenous inhibitor cystatin C resulted in opposite phenotypes. Although mitogenic vascular endothelial growth factor, transforming growth factor-beta1, and the anti-angiogenic endostatin levels in either serum or carcinoma tissue extracts did not change in cathepsin S- or cystatin C-null mice, tumor tissue basic fibroblast growth factor and serum type 1 insulin growth factor levels were higher in cystatin C-null mice, and serum type 1 insulin growth factor levels were also increased in cathepsin S-null mice. Furthermore, cathepsin S affected the production of type IV collagen-derived anti-angiogenic peptides and the generation of bioactive pro-angiogenic gamma2 fragments from laminin-5, revealing a functional role for cathepsin S in angiogenesis and neoplastic progression.