A sensitive in-cell imaging MMP-2 and MMP-9 detection systems that enables direct fluorescence detection of a target protease and its inhibition inside living cells has been developed. This in-cell imaging system utilizes the concept of fluorescent molecular beacon reporter (MBR) protein comprising a masking protein, a mitochondrial targeting sequence, a protease specific cleavage sequence and a fluorescent marker sequence, green fluorescent protein (GFP). The MBR protein is designed to change its intracellular location upon cleavage by either MMP-2 or MMP-9 from cytosol to mitochondria. Full and partial MMP-2 and MMP-9 were tested for optimal expression and activity in the cell. The activity of MMP-2 and MMP-9 was approximately 65-71%. Among MMP clones, MMP-2 catalytic domain and MMP-9 clone containing pro, catalytic and hemopexin domain were most active. Both MMP-2 and MMP-9 required divalent ions Ca and Zn for its activity and MMP-9 was more active at higher Ca/Zn ratio. With the in-cell imaging assay the protease activity can be measured in cellular environment and cellular toxicity of candidate molecules can be monitored at the same time. These are great advantage when compared to other currently used in vitro biochemical assays. The in-cell imaging assay developed in this study can be modified for other MMPs and can be used in various life science and drug discovery researches including the high throughput screening and high contents screening applications.