Three-dimensional (3D) cell culture systems more closely mimic the in vivo cellular microenvironment than traditional two-dimensional cell culture methods, making them a valuable tool in drug screening assays. However, 3D environments often make analysis of cellular responses more difficult, so most high-throughput (HT) 3D assays have been limited to measurements of cell viability. Yet, many other cell functions contribute to disease and are important pharmacological targets. Therefore, there is a need for new technologies that enable HT measurements of a wider range of cell functions for drug screening. Here, we have adapted a hydrogel system that enables cells to be cultured in a 3D environment and allows for the simultaneous detection of matrix metalloproteinase (MMP) and metabolic activities. This system was then characterized for utility in HT screening approaches. MMPs are critical regulators of tissue homeostasis and are upregulated in many diseases, such as arthritis and cancer. The developed assay achieved Z'-factor values above 0.9 and 0.5 for enzymatic and cellular assays, respectively, intraplate coefficients of variation (%CV) below 10% and 12%, respectively, and signal measurement was unaffected by dimethyl sulfoxide, a common solvent of therapeutic compounds. Human MMP-1, -2, and -9 resulted in a significant increase in signal intensity. Encapsulation of several cell types produced robust signals above background noise and within the linear range of the assay. Multiple drugs that are known to alter MMP activity were utilized in a range of concentrations with a fibrosarcoma cell line to demonstrate the feasibility of the assay for HT applications. This assay combines 3D cellular encapsulation and MMP activity detection in HT format, which makes it suitable for drug screening and development applications.