Decreased E2 levels after menopause cause bone loss through increased penetrative resorption. The reversal effect of E2 substitution therapy is well documented in vivo, although the detailed mechanism of action is not fully understood. To study the effects of E2 on bone resorption, we developed a novel in vitro bone resorption assay in which degradation of inorganic and organic matrix could be measured separately. E2 treatment significantly decreased the depth of resorption pits, although the area resorbed was not changed. Electron microscopy further revealed that the resorption pits were filled with nondegraded collagen, suggesting that E2 disturbed the organic matrix degradation. Two major groups of proteinases, matrix metalloproteinases (MMPs) and cysteine proteinases, have been suggested to participate in organic matrix degradation by osteoclasts. We show here that MMP-9 released a cross-linked carboxyl-terminal telopeptide of type I collagen from bone collagen, and cathepsin K released another C-terminal fragment, the C-terminal cross-linked peptide of type I collagen. E2 significantly inhibited the release of the C-terminal cross-linked peptide of type I collagen into the culture medium without affecting the release of cross-linked carboxyl-terminal telopeptide of type I collagen in osteoclast cultures. These results suggest that organic matrix degradation is initiated by MMPs and continued by cysteine proteases; the latter event is regulated by E2.