Invasive cancer cells form dynamic adhesive structures associated with matrix degradation called invadopodia. Calpain 2 is a calcium-dependent intracellular protease that regulates adhesion turnover and disassembly through the targeting of specific substrates such as talin. Here, we describe a novel function for calpain 2 in the formation of invadopodia and in the invasive abilities of breast cancer cells through the modulation of endogenous c-Src activity. Calpain-deficient breast cancer cells show impaired invadopodia formation that is rescued by expression of a truncated fragment of protein tyrosine phosphatase 1B (PTP1B) corresponding to the calpain proteolytic fragment, which indicates that calpain modulates invadopodia through PTP1B. Moreover, PTP1B activity is required for efficient invadopodia formation and breast cancer invasion, which suggests that PTP1B may modulate breast cancer progression through its effects on invadopodia. Collectively, our experiments implicate a novel signaling pathway involving calpain 2, PTP1B, and Src in the regulation of invadopodia and breast cancer invasion.