Matrix metalloproteinases (MMPs) remodel the extracellular matrix (ECM) to facilitate epithelial-to-mesenchymal transitions (EMTs) and promote cell specification during embryonic development. In this study, we hypothesized that introducing degradable ECM-based biomaterials to pluripotent stem cell (PSC) aggregates would modulate endogenous proteolytic activity and consequently enhance the differentiation and morphogenesis within 3D PSC aggregates. Gelatin methacrylate (GMA) microparticles (MPs) of low (~20%) or high (~90%) cross-linking densities were incorporated into mouse embryonic stem cell (ESC) aggregates, and the effects on MMP activity and cell differentiation were examined with or without MMP inhibition. ESC aggregates containing GMA MPs expressed significantly higher levels of total MMP and MMP-2 than aggregates without MPs. GMA MP incorporation increased expression of EMT markers and enhanced mesenchymal morphogenesis of PSC aggregates. MMP inhibition completely abrogated these effects, and GMA MP-induced MMP activation within ESC aggregates was partially reduced by pSMAD 1/5/8 inhibition. These results suggest that GMA particles activate MMPs by protease-substrate interactions to promote EMT and mesenchymal morphogenesis of ESC aggregates in an MMP-dependent manner. We speculate that controlling protease activity via the introduction of ECM-based materials may offer a novel route to engineer the ECM microenvironment to modulate stem cell differentiation.