The feasibility of dissolved-core alginate-templated fluorescent microspheres as “smart tattoo” glucose biosensors was investigated in simulated interstitial fluid (SIF). The sensor works on the principle of competitive binding and fluorescence resonance energy transfer. The sensor consists of multilayer thin film coated alginate microspheres incorporating dye-labeled glucose receptor and competing ligand within the partially dissolved alginate core. In this study, different approaches for the sensing and detection chemistry were studied, and the response of encapsulated reagents was compared with the solution-phase counterparts. The glucose sensitivity of the encapsulated TRITC-Con A/FITC-dextran (500 kDa) assay in DI water was estimated to be 0.26%/mM glucose while that in SIF was observed to be 0.3%/mM glucose. The glucose sensitivity of TRITC-apo-GOx/FITC-dextran (500 kDa) assay was estimated to be 0.33%/mM glucose in DI water and 0.5%/mM glucose in SIF and both demonstrated a response in the range of 0–50 mM glucose. Therefore, it is hypothesized that the calcium ion concentration outside the microsphere (in the SIF) does not interfere with the response sensitivity. The sensor response was observed to exhibit a maximum response time of 120 s. The system further exhibited a sensitivity of 0.94%/mM glucose with a response in range of 0–50 mM glucose, using near-infrared dyes (Alexa Fluor-647-labeled dextran as donor and QSY-21-conjugated apo-GOx as acceptor), thereby making the sensor more amenable to in vivo use, when implanted in scattering tissue. Biotechnol. Bioeng. 2009; 104: 1075–1085. © 2009 Wiley Periodicals, Inc.