Sclerostin is a clinically important protein with key functions in the musculoskeletal system playing a key role in bone formation and remodelling. Whilst a wide range of mechanisms have been identified which regulate sclerostin expression, little is known about the degradation of the protein. The aim of this study was to identify enzymes capable of degrading sclerostin in peridontal ligament (PDL) fibroblasts cells in vitro and to investigate the functionality of these enzymes. We have demonstrated that cathepsin K cleaves sclerostin in vitro in PDL. We have shown that cathepsin K and sclerostin are co-localised in PDL cells and, using cathepsin K knockdown experiments, we have shown that cathepsin K actively controls sclerostin levels in these cells, through a lysosomal mechanism that is affected by hypoxia. These results are the first description of the degradative control of sclerostin in musculoskeletally derived cells in vitro and suggest that degradation of the protein may well play an important role in the control of bone formation and remodelling.