The heparan sulfate proteoglycan syndecan-1 (Sdc1) modulates cell proliferation, adhesion, migration and angiogenesis. Proteinase-mediated shedding converts Sdc1 from a membrane-bound coreceptor into a soluble effector capable of binding the same ligands. In breast carcinomas, Sdc1 overexpression correlates with poor prognosis and an aggressive phenotype. To distinguish between the roles of membrane-bound and shed forms of Sdc1 in breast cancer progression, human MCF-7 breast cancer cells were stably transfected with plasmids overexpressing wild-type (WT), constitutively shed and uncleavable forms of Sdc1. Overexpression of WT Sdc1 increased cell proliferation, whereas overexpression of constitutively shed Sdc1 decreased proliferation. Fibroblast growth factor-2-mediated mitogen-activated protein kinase signaling was reduced following small-interfering RNA (siRNA)-mediated knockdown of Sdc1 expression. Constitutively, membrane-bound Sdc1 inhibited invasiveness, whereas soluble Sdc1 promoted invasion of MCF-7 cells into matrigel matrices. The latter effect was reversed by the matrix metalloproteinase inhibitors N-isobutyl-N-(4-methoxyphenylsufonyl) glycyl hydroxamic acid and tissue inhibitor of metalloproteinase (TIMP)-1. Affymetrix microarray analysis identified TIMP-1, Furin and urokinase-type plasminogen activator receptor as genes differentially regulated in soluble Sdc1-overexpressing cells. Endogenous TIMP-1 expression was reduced in cells overexpressing soluble Sdc1 and increased in those overexpressing the constitutively membrane-bound Sdc1. Moreover, E-cadherin protein expression was downregulated in cells overexpressing soluble Sdc1. Our results suggest that the soluble and membrane-bound forms of Sdc1 play different roles at different stages of breast cancer progression. Proteolytic conversion of Sdc1 from a membrane-bound into a soluble molecule marks a switch from a proliferative to an invasive phenotype, with implications for breast cancer diagnostics and potential glycosaminoglycan-based therapies.