We report an enzyme-based method for the in situ entrapment of cells within a biopolymeric hydrogel matrix. Specifically, we used a calcium-independent microbial transglutaminase that is known to cross-link proteins and observed that it catalyzes the formation of gels from a pre-gel solution containing 10% gelatin and E. coli cells. Hydrogel formation occurs 2-3 h after adding transglutaminase, and no additional external intervention is required to initiate gel formation. The in situ entrapped cells grow rapidly and to high cell densities within the gelatin hydrogel. Additionally, the entrapped cells respond to isopropylthiogalactoside induction. The cross-linked gelatin network can be rapidly hydrolyzed (within 1 h) by the protease, proteinase K. Treatment of the network by this protease releases the entrapped E. coli cells. These cells appear unharmed by proteinase K; they can grow and be induced after protease treatment. The ability to in situ entrap, grow, and release cells under mild conditions provides unique opportunities for a range of applications and should be especially useful for microfluidic biosensor systems.