All biosensing platforms rest on two pillars: specific biochemical recognition of a particular analyte and transduction of that recognition into a readily detectable signal. Most existing biosensing technologies utilize proteins that passively bind to their analytes and therefore require wasteful washing steps, specialized reagents, and expensive instruments for detection. To overcome these limitations, protein engineering strategies have been applied to develop new classes of protein-based sensor/actuators, known as protein switches, responding to small molecules. Protein switches change their active state (output) in response to a binding event or physical signal (input) and therefore show a tremendous potential to work as a biosensor. Synthetic protein switches can be created by the fusion between two genes, one coding for a sensor protein (input domain) and the other coding for an actuator protein (output domain) by domain insertion. The binding of a signal molecule to the engineered protein will switch the protein function from an “off” to an “on” state (or vice versa) as desired. The molecular switch could, for example, sense the presence of a metabolite, pollutant, or a biomarker and trigger a cellular response. The potential sensing and response capabilities are enormous; however, the recognition repertoire of natural switches is limited. Thereby, bioengineers have been struggling to expand the toolkit of molecular switches recognition repertoire utilizing periplasmic binding proteins (PBPs) as protein-sensing components. PBPs are a superfamily of bacterial proteins that provide interesting features to engineer biosensors, for instance, immense ligand-binding diversity and high affinity, and undergo large conformational changes in response to ligand binding. The development of these protein switches has yielded insights into the design of protein-based biosensors, particularly in the area of allosteric domain fusions. Here, recent protein engineering approaches for expanding the versatility of protein switches are reviewed, with an emphasis on studies that used PBPs to generate novel switches through protein domain insertion.