A major drawback with current cancer therapy is the prevalence of unrequired dose-limiting toxicity to non-cancerous tissues and organs, which is further compounded by a limited ability to rapidly and easily monitor drug delivery, pharmacodynamics and therapeutic response. In this report, the design and characterization of novel multifunctional “theranostic” nanoparticles (TNPs) is described for enzyme-specific drug activation at tumor sites and simultaneous in vivo magnetic resonance imaging (MRI) of drug delivery. TNPs are synthesized by conjugation of FDA-approved iron oxide nanoparticles ferumoxytol to an MMP-activatable peptide conjugate of azademethylcolchicine (ICT), creating CLIO-ICTs (TNPs). Significant cell death is observed in TNP-treated MMP-14 positive MMTV-PyMT breast cancer cells in vitro, but not MMP-14 negative fibroblasts or cells treated with ferumoxytol alone. Intravenous administration of TNPs to MMTV-PyMT tumor-bearing mice and subsequent MRI demonstrates significant tumor selective accumulation of the TNP, an observation confirmed by histopathology. Treatment with CLIO-ICTs induces a significant antitumor effect and tumor necrosis, a response not observed with ferumoxytol. Furthermore, no toxicity or cell death is observed in normal tissues following treatment with CLIO-ICTs, ICT, or ferumoxytol. These findings demonstrate proof of concept for a new nanotemplate that integrates tumor specificity, drug delivery and in vivo imaging into a single TNP entity through attachment of enzyme-activated prodrugs onto magnetic nanoparticles. This novel approach holds the potential to significantly improve targeted cancer therapies, and ultimately enable personalized therapy regimens.