Endostatin, an inhibitor of angiogenesis and tumor growth, was identified originally in conditioned media of murine hemangioendothelioma (EOMA) cells. N‐terminal amino acid sequencing demonstrated that it corresponds to a fragment of basement membrane collagen XVIII. Here we report that cathepsin L is secreted by EOMA cells and is responsible for the generation of endostatin with the predicted N‐terminus, while metalloproteases produce larger fragments in a parallel processing pathway. Efficient endostatin generation requires a moderately acidic pH similar to the pericellular milieu of tumors. The secretion of cathepsin L by a tumor cell line of endothelial origin suggests that this cathepsin may play a role in angiogenesis. We propose that cleavage within collagen XVIII's protease‐sensitive region evolved to regulate excessive proteolysis in conditions of induced angiogenesis.