Cystatin C (Cst-3) is a potent inhibitor of cysteine proteases with diverse biological functions. As a secreted protein, the potential interaction between Cst-3 and extracellular matrix components has not been well studied. Here we investigated the interaction between Cst-3 and heparan sulfate (HS), a major component of extracellular matrix. We discovered that Cst-3 is a HS-binding protein only at acidic pH. By NMR and site-directed mutagenesis, we identified two HS binding regions in Cst-3: the highly dynamic N-terminal segment and a flexible region located between residue 70-94. The composition of the HS-binding site by two highly dynamic halves is unique in known HS-binding proteins. We further discovered that HS-binding severely impairs the inhibitory activity of Cst-3 towards papain, suggesting the interaction could actively regulate Cst-3 activity. Using murine bone tissues, we showed that Cst-3 interacts with bone matrix HS at low pH, again highlighting the physiological relevance of our discovery.