Heparanase is an endo-߭glucuronidase that cleaves heparan sulfate side chains of proteoglycans in basement membranes and the extracellular matrix (ECM). Heparanase is implicated in several diverse pathological processes associated with ECM degradation such as metastasis, inflammation and angiogenesis and is thus an important target for anti-cancer and anti-inflammatory drug discovery. Heparanase has been classed as belonging to the clan A glycoside hydrolase family 79 based on sequence analysis, secondary structure predictions and mutagenic analysis, and thus it has been inferred that it is a retaining glycosidase. However, there has been no direct experimental evidence to support this conclusion. Herein we describe 1H NMR spectroscopic studies of the hydrolysis of the pentasaccharide substrate fondaparinux by heparanase, and provide conclusive evidence that heparanase hydrolyses its substrate with retention of configuration and is thus established as a retaining glycosidase. Knowledge of the mechanism of hydrolysis may have implications for future design of inhibitors for this important drug target.