Heparanase plays a critical role in the degradation of extracellular matrix and cell membrane and is frequently upregulated in malignant tumors. Transcription factor, early growth response 1 (EGR1), is closely associated with inducible transcription of the heparanase gene. We hypothesized that promoter CpG hypomethylation with increased EGR1 expression could determine heparanase expression during the pathogenesis of bladder cancer. Bladder cancer cell lines (J82, T24 and transitional cell carcinoma) significantly restored heparanase expression after 5-Aza-dC treatment. Transfection of EGR1 siRNA with T24 bladder cancer cell line significantly downregulated heparanase expression compared to the control siRNA transfection. In 54 bladder cancer and paired normal bladder samples, heparanase expression was significantly higher in bladder cancer than in normal bladder (P<0.01). We performed methylation-specific PCR targeting the CpG sites within the core-binding consensus motifs of EGR1 (GGCG) and Sp1 (GGGCGG). Methylation prevalence was significantly higher in normal bladder than in bladder cancer (P<0.05) and inversely correlated with heparanase expression (P=0.055). In the total series of bladder cancer and normal bladder samples, the combination of promoter CpG methylation and EGR1 expression regulated heparanase expression in a stepwise manner, where heparanase expression was the lowest in methylation-positive and EGR1-negative samples and the highest in methylation-negative and EGR1-positive samples. To our knowledge, this is the first study demonstrating that increased heparanase expression during the pathogenesis of bladder cancer is due to promoter hypomethylation and transcription factor EGR1.