The implantation of the mouse embryo requires the controlled invasion of the uterine stroma by the embryonic trophoblast. This event is dependent, in part, on the secretion of matrix metalloproteinases and serine proteinases for the extracellular degradation of the uterine matrix. Proteinase activity is controlled by stromal decidualization and specific proteinase inhibitors. This work adds to our understanding of implantation and placentation by reporting the expression and function of another class of proteinases/inhibitors closely related to invasive cell behavior. We focused on the cysteine proteinases, cathepsins B and L, and their inhibitor cystatin C. Northern blots showed that trophoblast expressed cathepsin B throughout the invasive period (days 5.5-10.5). Both cathepsin B message and cathepsin L protein were localized to the mature, invasive trophoblast giant cells. Substrate gel electrophoresis showed an increase in giant cell cathepsin activity with enzyme profiles changing at the end of the invasive period. Northern and western blotting showed that cystatin C, the main inhibitor of cathepsins, was a major product of the decidualizing stroma. Message levels first increased in peripheral decidualizing cells, with the protein localizing close to the embryo during implantation (days 5.5-8.5). With the regression of the decidua beginning on day 9.5, a coordinated upregulation of both cathepsin B and cystatin C was observed implying a role for controlled cathepsin expression during apoptosis. E-64, a synthetic inhibitor of cathepsins B and L, was injected into pregnant females at the stage of blastocyst attachment (days 4.5-5.5). High doses resulted in the complete failure of implantation while lower doses resulted in stunted embryos and a reduced decidual reaction. These results suggested that cathepsins B and L are necessary for normal embryo development and uterine decidualization, and that decidua contributes to their control by a coordinated expression of cystatin C within the implantation site.