Clinical studies provide overwhelming evidence for the importance of proteolytic imbalance and the upregulation of diverse protease classes in diseases such as cancer and arthritis. While the complex nature of proteolytic networks has hampered the development of protease inhibitors for these indications, aberrant enzyme activity could be successfully exploited for the development of protease-sensitive drug delivery systems and fluorescent in vivo imaging agents. More recently, these concepts have also been translated into photomedical applications to develop dual modality prodrugs for the simultaneous treatment and imaging of disease. After an introductory overview of proteases and their role in cancer, we present and discuss different strategies to exploit upregulated protease activity for the development of drug delivery systems, fluorescent in vivo reporter probes, and photosensitizer-prodrugs with respect to their potential and limitations. The main approaches used for targeting proteases in all three areas can be roughly divided into peptide-based and macromolecular strategies. Both involve the use of a short, peptide-based protease substrate, which is either directly tagged to the therapeutic agent or dye/quencher pair, or alternatively, serves as a linker between the polymeric carrier and a functional unit. In the latter case, the pharmacokinetic properties of peptide-based protease-sensitive prodrugs and imaging probes can be further ameliorated by the passive targeting capacity of macromolecular drug delivery systems for neoplastic and inflammatory lesions.