To define a functional role for the endosomal/lysosomal cysteine protease cathepsin L (Ctsl) during squamous carcinogenesis, we generated mice harboring a constitutive Ctsl deficiency in addition to epithelial expression of the human papillomavirus type 16 oncogenes (human cytokeratin 14 (K14)–HPV16). We found enhanced tumor progression and metastasis in the absence of Ctsl. As tumor progression in K14–HPV16 mice is dependent on inflammation and angiogenesis, we examined immune cell infiltration and vascularization without finding any effect of the Ctsl genotype. In contrast, keratinocyte-specific transgenic expression of cathepsin V, the human orthologue of mouse Ctsl, in otherwise Ctsl-deficient K14–HPV16 mice restored the phenotype observed in the control HPV16 skin. To better understand this phenotype at the molecular level, we measured several oncogenic signal transduction pathways in primary keratinocytes on stimulation with keratinocyte-conditioned cell culture medium. We found increased activation of protein kinase B/Akt and mitogen-activated protein kinase pathways in protease-deficient cells, especially if treated with media conditioned by Ctsl-deficient keratinocytes. Similarly, the level of active GTP-Ras was increased in Ctsl-deficient epidermis. We conclude that Ctsl is critical for the termination of growth factor signaling in the endosomal/lysosomal compartment of keratinocytes and, therefore, functions as an anti-tumor protease.