Allosteric modifiers have the potential to fine-tune enzyme activity. Therefore, targeting allosteric sites is gaining increasing recognition as a strategy in drug design. Here we report the use of computational methods for the discovery of the first small-molecule allosteric inhibitor of the collagenolytic cysteine peptidase cathepsin K, a major target for the treatment of osteoporosis. The molecule NSC13345 is identified by high-throughput docking of compound libraries to surface sites on the peptidase that are connected to the active site by an evolutionarily conserved network of residues (protein sector). The crystal structure of the complex shows that NSC13345 binds to a novel allosteric site on cathepsin K. The compound acts as a hyperbolic mixed modifier in the presence of a synthetic substrate, it completely inhibits collagen degradation and has good selectivity for cathepsin K over related enzymes. Altogether, these properties qualify our methodology and NSC13345 as promising candidates for allosteric drug design.