Matrix metalloproteinases (MMPs) play a central role in the breakdown of the extracellular matrix and are typically upregulated in cancer cells. The goal of the present study is to develop microwells suitable for capture of cells and detection of cell-secreted proteases. Hydrogel microwells comprised of poly(ethylene glycol) (PEG) were photopatterned on glass and modified with ligands to promote cell adhesion. To sense protease release, peptides cleavable by MMP9 were designed to contain a donor/acceptor FRET pair (FITC and DABCYL). These sensing molecules were incorporated into the walls of the hydrogel wells to enable a detection scheme where cells captured within the wells secreted protease molecules which diffused into the gel, cleaved the peptide, and caused a fluorescence signal to come on. By challenging sensing hydrogel microstructures to known concentrations of recombinant MMP9, the limit of detection was determined to be 0.625 nM with a linear range extending to 40 nM. To enhance sensitivity and to limit cross-talk between adjacent sensing sites, microwell arrays containing small groups (∼20 cells/well) of lymphoma cells were integrated into reconfigurable PDMS microfluidic devices. Using this combination of sensing hydrogel microwells and reconfigurable microfluidics, detection of MMP9 release from as few as 11 cells was demonstrated. Smart hydrogel microstructures capable of sequestering small groups of cells and sensing cell function have multiple applications ranging from diagnostics to cell/tissue engineering. Further development of this technology will include single-cell analysis and function-based cell sorting capabilities.