We have recently discovered that the insulin-like growth factor receptor I (IGF-IR) is up-regulated in human invasive bladder cancer and promotes migration and invasion of transformed urothelial cells. The proteoglycan decorin, a key component of the tumor stroma, can positively regulate the IGF-IR system in normal cells. However, there are no available data on the role of decorin in modulating IGF-IR activity in transformed cells or in tumor models. Here we show that the expression of decorin inversely correlated with IGF-IR expression in low and high grade bladder cancers (n = 20 each). Decorin bound with high affinity IGF-IR and IGF-I at distinct sites and negatively regulated IGF-IR activity in urothelial cancer cells. Nanomolar concentrations of decorin promoted down-regulation of IRS-1, one of the critical proteins of the IGF-IR pathway, and attenuated IGF-I-dependent activation of Akt and MAPK. This led to decorin-evoked inhibition of migration and invasion upon IGF-I stimulation. Notably, decorin did not cause down-regulation of the IGF-IR in bladder, breast, and squamous carcinoma cells. This indicates that decorin action on the IGF-IR differs from its known activity on other receptor tyrosine kinases such as the EGF receptor and Met. Our results provide a novel mechanism for decorin in negatively modulating both IGF-I and its receptor. Thus, decorin loss may contribute to increased IGF-IR activity in the progression of bladder cancer and perhaps other forms of cancer where IGF-IR plays a role.