Extracellular matrix (ECM) and basement membranes (BMs) present a physical barrier that requires enzymatic degradation during endothelial cell (EC) sprouting at early stages of angiogenesis. These multimolecular structures also serve as a storage depot for heparin‐binding angiogenic factors. Heparan sulfate proteoglycans (HSPGs) are responsible for the self‐assembly and integrity of the ECM and BM structure, as well as for sequestration of growth and differentiation factors. Recently, we reported the cloning of heparanase, an endo‐β‐d‐glucuronidase degrading heparan sulfate (HS), and provided direct evidence for its role in tumor metastasis. We now demonstrate that heparanase is intimately involved in angiogenesis and elucidate its mode of action. Apart from its direct involvement in ECM degradation and EC migration (vascular sprouting), heparanase releases active basic fibroblast growth factor (bFGF) from the subendothelial ECM, as well as bFGF‐stimulating HS degradation fragments from the EC surface. Interestingly, ECM‐derived HS fragments induced little or no potentiation of the growth‐promoting activity of bFGF. The angiogenic effect of heparanase was demonstrated in vivo (via the Matrigel plug assay) by showing a three‐ to fourfold increase in neovascularization induced by murine T‐lymphoma cells after stable transfection with the heparanase gene. Increased tissue vascularity was also observed in a mouse wound‐healing model in response to topical administration of recombinant heparanase. Immunohistochemical staining of human colon carcinoma tissue revealed a high expression of the heparanase protein in the endothelium of sprouting capillaries and small vessels, but not of mature quiescent blood vessels. The ability of heparanase to promote tumor angiogenesis and its involvement in tumor metastasis make it a promising target for cancer therapy.