Although inhibitors of bone resorption concomitantly reduce bone formation because of the coupling between osteoclasts and osteoblasts, inhibition or deletion of cathepsin k (CatK) stimulates bone formation despite decreasing resorption. The molecular mechanisms responsible for this increase in bone formation, particularly at periosteal surfaces where osteoclasts are relatively poor, remain unclear. Here we show that CatK pharmacological inhibition or deletion (Ctsk^‐/‐ mice) potentiates mechanotransduction signals mediating cortical bone formation. We identify periostin (Postn) as a direct molecular target for degradation by CatK and show that CatK deletion increases Postn and β‐catenin expression in vivo, particularly at the periosteum. In turn, Postn deletion selectively abolishes cortical, but not trabecular, bone formation in CatK‐deficient mice. Taken together, these data indicate that CatK not only plays a major role in bone remodeling but also modulates modeling‐based cortical bone formation by degrading periostin and thereby moderating Wnt‐β‐catenin signaling. These findings provide novel insights into the role of CatK on bone homeostasis and the mechanisms of increased cortical bone volume with CatK mutations and pharmacological inhibitors. © 2017 American Society for Bone and Mineral Research.