IGF-II gut drives mucosal growth during gestation. IGFBP-2 has a high affinity for IGF-II and tightly regulates IGF-II availability during fetal and early neonatal growth. We have previously demonstrated that glucocorticoids alter IGF homeostasis in the neonatal ileum, but the mechanism(s) by which this occurs is poorly understood. We hypothesized that dexamethasone alters proteolytic regulation of IGFBP-2 in ileal crypt cells. To test this, ileal crypt (IEC-18) cells were cultured in serum free media and used to study IGFBP-2 catabolism by immunochemistry, gene array analysis and pharmacologic perturbation with dexamethasone. In addition, isolated human IGFBP-2, IGF-II and cathepsin B, D and L were utilized for in vitro protease assays. We found IGFBP-2 to be highly abundant in IEC-18 culture and sequestration of carboxyl IGFBP-2 antigen was seen within vesicular bodies of some cells. Dexamethasone significantly decreased the number of these cells and decreased IGFBP-2 in the media. On gene array analysis, cathepsin L's message abundance was significantly increased by dexamethasone and, by in vitro assay, cathepsin L created a 14 kD carboxyl fragment that corresponded to the sole antigen detected in IEC-18 cell lysates as well as a 16.5 kD fragment found in the media. The sequestered fragment size was formed preferentially when IGF-II was present, whereas the larger fragment size was formed preferentially when IGF-II was absent. Cathepsin B and D did not produce these fragments in vitro and were not detected in IEC-18 media. We conclude that dexamethasone alters IGFBP-2 catabolism through its effects upon cathepsin L.