Current therapies for tissue regeneration rely on the presence or direct delivery of growth factors to sites of repair. Bone morphogenetic protein-2 (BMP-2), combined with a carrier (usually collagen), is clinically proven to induce new bone formation during spinal fusion and nonunion repair. However, due to BMP-2's short half-life and its diffusive properties, orders of magnitude above physiological levels are required to ensure effectiveness. In addition, a high dose of this multifunctional growth factor is known to induce adverse effects in patients. To circumvent these challenges, we proposed and tested a new approach for BMP-2 delivery, by controlling BMP activity via carrier binding and localized proteolysis. BMP-2 was covalently bound to gelatin through site-specific enzymatic crosslinking using a microbial transglutaminase. Binding of BMP-2 to gelatin can completely switch off BMP-2 activity, as evidenced by loss of its transdifferentiating ability toward C2C12 promyoblasts. When gelatin sequestered BMP-2 is incubated with either microbial collagenase or tissue-derived matrix metalloproteinases, BMP-2 activity is fully restored. The activity of released BMP-2 correlates with the protease activity in a dose- and time-dependent manner. This observation suggests a novel way of delivering BMP-2 and controlling its activity. This improved delivery method, which relies on a physiological feedback, should enhance the known potential of this and other growth factors for tissue repair and regeneration.