Membrane type 1 matrix metalloproteinase (MT1-MMP) plays a critical role in cancer cell biology by proteolytically remodeling the extracellular matrix. Utilizing fluorescence resonance energy transfer (FRET) imaging, we have developed a novel biosensor, with its sensing element anchoring at the extracellular surface of cell membrane, to visualize MT1-MMP activity dynamically in live cells with subcellular resolution. Epidermal growth factor (EGF) induced significant FRET changes in cancer cells expressing MT1-MMP, but not in MT1-MMP-deficient cells. EGF-induced FRET changes in MT1-MMP-deficient cells could be restored after reconstituting with wild-type MT1-MMP, but not MMP-2, MMP-9, or inactive MT1-MMP mutants. Deletion of the transmembrane domain in the biosensor or treatment with tissue inhibitor of metalloproteinase-2, a cell-impermeable MT1-MMP inhibitor, abolished the EGF-induced FRET response, indicating that MT1-MMP acts at the cell surface to generate FRET changes. In response to EGF, active MT1-MMP was directed to the leading edge of migrating cells along micropatterned fibronectin stripes, in tandem with the local accumulation of the EGF receptor, via a process dependent upon an intact cytoskeletal network. Hence, the MT1-MMP biosensor provides a powerful tool for characterizing the molecular processes underlying the spatiotemporal regulation of this critical class of enzymes.