Heparan sulfate proteoglycans are essential for biological processes regulated by fibroblast growth factors (FGFs). Heparan sulfate (HS) regulates the activity of FGFs by acting as a coreceptor at the cell surface, enhancing FGF-FGFR affinity, and being a storage reservoir for FGFs in the extracellular matrix (ECM). Here we demonstrate a critical role for heparanase during mouse submandibular gland (SMG) branching morphogenesis. Heparanase, an endoglycosidase, colocalized with perlecan in the basement membrane and in epithelial clefts of SMGs. Inhibition of heparanase activity in organ culture decreased branching morphogenesis, and this inhibition was rescued specifically by FGF10 and not by other FGFs. By contrast, exogenous heparanase increased SMG branching and MAPK signaling and, surprisingly, when isolated epithelia were cultured in a three-dimensional ECM with FGF10, it increased the number of lateral branches and end buds. In a solid-phase binding assay, an FGF10-FGFR2b complex was released from the ECM by heparanase. In addition, surface plasmon resonance (SPR) analysis showed that FGF10 and the FGF10-FGFR2b complex bound to purified perlecan HS and could be released by heparanase. We used the FGF10-FGFR2b complex as a probe for HS in SMGs, and it colocalized with perlecan in the basement membrane and partly colocalized with syndecan 1 in the epithelium, and binding was reduced by treatment with heparanase. In summary, our results show heparanase releases FGF10 from perlecan HS in the basement membrane, increasing MAPK signaling, epithelial clefting, and lateral branch formation, which results in increased branching morphogenesis.