The development and in vitro performance of a modular nanoscale system capable of specific structural modification by enzymatic activity is described in this work. Due to its small physical size and adaptable characteristics, this system has the potential for utilization in targeted delivery systems and biosensing. Nanoparticle probes were synthesized containing two distinct fluorescent species including a quantum dot base particle and fluorescently labeled cleavable peptide substrate. Activity of these probes was monitored by gel electrophoresis with quantitative cleavage measurements made by fluorometric analysis. The model proximity-activated nanoparticles studied here exhibit significant susceptibility to cleavage by matrix metalloprotease-7 (MMP-7) at physiologically relevant concentrations, with nearly complete cleavage of available substrate molecules after 24 hours. This response is specific to MMP-7 enzyme activity, as cleavage is completely inhibited with the addition of EDTA. Utilization of enzyme-specific modification is a sensitive approach with broad applications for targeted therapeutics and biosensing. The versatility of this nanoparticle system is highlighted in its modular design, as it has the capability to integrate characteristics for detection, biosensing, targeting, and payload delivery into a single, multifunctional nanoparticle structure.