Lysosomal cathepsin B has been implicated in parasitic, inflammatory and neoplastic diseases. Most of these pathologies suggest a role for cathepsin B outside the cells, although the origin of extracellular active enzyme is not well defined. The activity of extracellular cathepsin B is difficult to assess because of the presence of inhibitors and inactivation of the enzyme by oxidizing agents. Therefore, we have developed a continuous assay for measurement of cathepsin B activity produced pericellularly by living cells. The kinetic rate of Z‐Arg‐Arg‐NHMec conversion was monitored and the assay optimized for enzyme stability, cell viability and sensitivity. To validate the assay, we determined that human liver cathepsin B was stable and active under the conditions of the assay and its activity could be inhibited by the selective epoxide derivative CA‐074. Via this assay, we were able to demonstrate that active cathepsin B was secreted pericellularly by viable cells. Both preneoplastic and malignant cells secreted active cathepsin B. Pretreatment of cells with the membrane‐permeant proinhibitor CA‐074Me completely abolished pericellular and total cathepsin B activity whereas pretreatment with the active drug CA‐074 had no effect. Immunoprecipitation and immunoblotting experiments suggested that the active enzyme species was 31‐kDa single‐chain cathepsin B. Exocytosis of cathepsin B was not related to secretion of proenzyme or secretion from mature lysosomes. Our results suggest an alternative pathway for exocytosis of active cathepsin B.