Heparan sulfate proteoglycans are important constituents of the extracellular matrix and basement membrane. Cleavage of heparan sulfate by heparanase, an endoglycosidase, is implicated in the extravasation of leukocytes and metastatic tumour cells, identifying this enzyme(s) as a target for anti-inflammatory and anti-metastatic therapies. The cloning of a cDNA encoding human heparanase (Hpa1) was reported recently, together with evidence indicating that the hpa1 gene is unique and unlikely to belong to a family of related genes. Here we report the cloning of a cDNA encoding a novel human protein, HPA2, with significant homology to Hpa1. Alternative splicing of the hpa2 transcript yields three different mRNAs, encoding putative proteins of 480, 534, and 592 amino acids. Sequence analyses predict that all three Hpa2 proteins are intracellular, membrane-bound enzymes. Hpa2 also shows a markedly different mRNA distribution to Hpa1 in both normal and cancer tissues. The difference in expression profiles and predicted cellular locations suggests that Hpa2 and Hpa1 proteins have distinct biological functions.