Hydrogel microparticles are particularly attractive for pulmonary drug delivery. Their size can be engineered for efficient delivery into the bronchi, where they subsequently swell, avoiding macrophage uptake. In this study, enzyme-responsive peptide functionalized poly(ethylene glycol) (PEG) based hydrogel microparticles were synthesized by an emulsion polymerization. Here, we demonstrate that these microparticles are nontoxic and demonstrated their viability as a drug carrier by studying the encapsulation and release of three types of drugs: a hydrophobic (dexamethasone), a hydrophilic (methylene blue) and a protein (horseradish peroxidase)-based drug. The release of each of these three drugs was studied in the presence of varying concentrations of matrix metalloproteinase (MMP). Each of the three types of drugs were able to be encapsulated in the microparticles, and we further showed that the protein is still functional after release.