We have cloned a gene (HSE1) from a human placental cDNA library that encodes a novel protein exhibiting heparanase activity. The cDNA was identified through peptide sequences derived from purified heparanase isolated from human SK-HEP-1 hepatoma cells. HSE1 contains an open reading frame encoding a predicted polypeptide of 543 amino acids and possesses a putative signal sequence at its amino terminus. Northern blot analysis suggested strong expression of HSE1 in placenta and spleen. Transient transfection of HSE1 in COS7 cells resulted in the expression of a protein with an apparent molecular mass of 67-72 kDa. HSE1 protein was detectable in conditioned media but was also associated with the membrane fraction following cell lysis. The HSE1 gene product was shown to exhibit heparanase activity by specifically cleaving a labeled heparan sulfate substrate in a similar manner as purified native protein.