Hereditary multiple exostoses is a pediatric skeletal disorder characterized by benign cartilaginous tumors called exostoses that form next to growing skeletal elements. Hereditary multiple exostoses patients carry heterozygous mutations in the heparan sulfate (HS)-synthesizing enzymes EXT1 or EXT2, but studies suggest that EXT haploinsufficiency and ensuing partial HS deficiency are insufficient for exostosis formation. Searching for additional pathways, we analyzed presence and distribution of heparanase in human exostoses. Heparanase was readily detectable in most chondrocytes, particularly in cell clusters. In control growth plates from unaffected persons, however, heparanase was detectable only in hypertrophic zone. Treatment of mouse embryo limb mesenchymal micromass cultures with exogenous heparanase greatly stimulated chondrogenesis and bone morphogenetic protein signaling as revealed by Smad1/5/8 phosphorylation. It also stimulated cell migration and proliferation. Interfering with HS function both with the chemical antagonist Surfen or treatment with bacterial heparitinase up-regulated endogenous heparanase gene expression, suggesting a counterintuitive feedback mechanism that would result in further HS reduction and increased signaling. Thus, we tested a potent heparanase inhibitor (SST0001), which strongly inhibited chondrogenesis. Our data clearly indicate that heparanase is able to stimulate chondrogenesis, bone morphogenetic protein signaling, cell migration, and cell proliferation in chondrogenic cells. These properties may allow heparanase to play a role in exostosis genesis and pathogenesis, thus making it a conceivable therapeutic target in hereditary multiple exostoses.