Tartrate-resistant acid phosphatase (TRAP) is a metallophosphoesterase participating in osteoclast-mediated bone turnover. Activation of TRAP is associated with the redox state of the di-iron metal center as well as with limited proteolytic cleavage in an exposed loop domain. The cysteine proteinases cathepsin B, L, K, and S as well as the matrix metalloproteinase-2, -9, -13, and -14 are expressed by osteoclasts and/or other bone cells and have been implicated in the turnover of bone and cartilage. To identify proteases that could act as activators of TRAP in bone, we report here that cathepsins K and L, in contrast to the matrix metalloproteinases, efficiently cleaved and activated recombinant TRAP in vitro. Activation of TRAP by cathepsin K/L was because of increases in catalytic activity, substrate affinity, and sensitivity to reductants. Processing by cathepsin K occurred sequentially by an initial excision of the loop peptide Gly(143)-Gly(160) followed by the removal of a Val(161)-Ala(162) dipeptide at the N terminus of the C-terminal 16-kDa TRAP subunit. Cathepsin L initially released a shorter Gln(151)-Gly(160) peptide and completed processing at Ser(145) or Gly(143) at the C terminus of the N-terminal 23-kDa TRAP subunit and at Arg(163) at the N terminus of the C-terminal 16-kDa TRAP subunit. Mutation of Ser(145) to Ala partly mimicked the effect of proteolysis on catalytic activity, identifying Ser(145) as well as Asp(146) (Funhoff, E. G., Ljusberg, J., Wang, Y., Andersson, G., and Averill, B. A. (2001) Biochemistry 40, 11614-11622) as repressive amino acids of the loop region to maintain the TRAP enzyme in a catalytically latent state. The C-terminal sequence of TRAP isolated from rat bone was consistent with cathepsin K-mediated processing in vivo. Moreover, cathepsin K, but not cathepsin L, co-localized with TRAP in osteoclast-resorptive compartments, supporting a role for cathepsin K in the extracellular processing of monomeric TRAP in the resorption lacuna.