We have developed collagenase-sensitive hydrogels by incorporating a collagenase-sensitive fluorogenic substrate (CS-FS) within the backbone of a polyethylene glycol (PEG) copolymer to visualize collagenase activity during three-dimensional cell migration. CS-FS was synthesized by conjugating Bodipy dyes to a peptide with collagenase-sensitive sequence, Leu-Gly-Pro-Ala (LGPA), and the products were grafted into the collagenase-sensitive PEG hydrogels. CS-FS both in solution and hydrogels had an increase in the fluorescence intensity after proteolytic degradation by collagenase, but not by non-targeted proteases nor in the absence of an enzyme. Fibroblasts inside the hydrogels conjugated with CS-FS spread and extended lamellipodia in three dimensions over several days, and their pericellular collagenase-mediated proteolysis of the hydrogel was visualized via confocal microscopy. A matrix metalloproteinase inhibitor, served as a negative control, significantly reduced the degradation rate of CS-FS by collagenase and prevented cell migration and cell-mediated collagenase activity inside these hydrogels. In summary, we have fabricated collagenase-sensitive hydrogels incorporated with CS-FS and successfully visualized the collagenase activity during three-dimensional cell migration.