Decorin is a small, leucine-rich proteoglycan that binds to collagen and regulates fibrillogenesis. We hypothesized that decorin binding to collagen inhibits phagocytosis of collagen fibrils. To determine the effects of decorin on collagen degradation, we analyzed phagocytosis of collagen and collagen/decorin-coated fluorescent beads by Rat-2 and gingival fibroblasts. Collagen beads bound to gingival cells by alpha2beta1 integrins. Binding and internalization of decorin/collagen-coated beads decreased dose-dependently with increasing decorin concentration (p < 0.001). Inhibition of binding was sustained over 5 h (p < 0.001) and was attributed to interactions between decorin and collagen and not to decorin-collagen receptor interactions. Both the non-glycosylated decorin core protein and the thermally denatured decorin significantly inhibited collagen bead binding (approximately 50 and 89%, respectively; p < 0.05). Mimetic peptides corresponding to leucine-rich repeats 1-3, encompassed by a collagen-binding approximately 11-kDa cyanogen bromide fragment of decorin and leucine-rich repeats 4 and 5, previously shown to bind to collagen, were tested for their ability to inhibit collagen bead binding. Although the synthetic peptide 3 alone exhibited saturable binding to collagen, neither peptides 3 nor 1 and 2 markedly inhibited phagocytosis. Leucine-rich repeat 3 bound to a triple helical peptide containing the alpha2 integrin-binding site of collagen. When collagen beads were co-incubated with peptides 3 and 4, inhibition of collagen phagocytosis (55%) was equivalent to intact native/recombinant core protein. Thus a novel collagen binding domain in decorin acts cooperatively with leucine-rich repeat 4 to mask the alpha2beta1 integrin-binding site on collagen, an important sequence for the phagocytosis of collagen fibrils.