Cathepsin K is a cysteine protease that degrades type I human collagen during bone resorption. We have expressed the recombinant human caehepsin K in Chinese hamster ovary (CHO) cells as a pre-proenzyme and demonstrated that it is processed intracellularly to an active enzyme form and that only the proenzyme form is secreted. Immunofluorescence detection of cathepsin K in CHO cells resulted in discrete punctate distribution consistent with a lysosomal localization of the enzyme. With both extract and cell preparations of CHO cells expressing cathepsin K, [Z-Leu-Arg](2)-rhodamine was the best substrate for analyzing cathepsin K activity over background proteases. We have established a cellular-based assay to analyze cell-permeable inhibitors of cathepsin K and validated the assay with detection of intracellular versus extracellular activity, fluorescence-assisted cell sorter (FACS) analysis, and a selective cathepsin K inhibitor. The intracellular activity of cathepsin K was monitored by FAGS analysis using the rhodamine substrate, which demonstrated an increased fluorescence over mock-transfected cells that was also inhibitable by (2S,3S)-trans-epoxysuccinyl-L-leucylamido-3-methylbutane ethyl ester (E64d). A selective cathepsin K inhibitor, 1,3-bis(CBZ Leu-NH)-2-propanone, had an IC50 of 134 nM in the CHO/Cat K cells, which is the same potency as that measured against a purified enzyme preparation of cathepsin K. Therefore, we have established a system to evaluate intracellular cathepsin K activity and inhibition by cell-permeable inhibitors of this thiol protease. (C) 2000 Elsevier Science Inc.