Perineuronal heparan sulfates (HS) have been implicated in controlling the open-state of AMPA-type glutamate receptors (AMPARs) which govern excitatory synaptic transmission in the hippocampus. We hypothesize that neuronal mechanisms modulate peri-synaptic HS level and as a result regulate synaptic function. Our finding of neuronal heparanase expression in adult rats led us to test if neuronal heparanase is secreted to act on perineuronal HS, thereby contributing to synaptic plasticity. Following phorbol ester stimulation of hippocampal neurons in culture, Western blot analysis of the secreted product revealed proheparanase but not the active heparanase. Synaptosomes prepared from phorbol ester-treated cortex slices were enriched in proheparanase; co-immunoprecipitation studies further showed association of AMPAR subunits (GluA1 and GluA2/3) with both syndecan-3 (transmembrane HS-proteoglycan) and proheparanase, suggesting their clustering as a functional complex. Treatment of hippocampal neuron cultures with recombinant proheparanase triggered internalization of proheparanase, perineuronal HS-proteoglycans and AMPARs. Heparitinase pre-treated hippocampal neuron cultures showed reduced proheparanase-induced internalization of AMPARs, suggesting that proheparanase binds to syndecan-3 via the HS moiety. Consistent with these findings, treatment of hippocampal slices with exogenous proheparanase resulted in declines in both basal synaptic strength and LTP. Proheparanase treatment also prevented glutamate-induced calcium influx of the hippocampal neurons in culture. These results reveal a novel role of neuronal proheparanase in regulating synaptic plasticity by resetting AMPARs and perineuronal HS levels at the synapse. [Supported by HKRGC 774608]