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Growth in nanotechnology has been fuelled by miniaturization of electronic systems, development of biomedical sciences and interest in nanomaterials that exhibit interesting properties. Current techniques to fabricate small devices have difficulty in accessing the size range between 10-100 nm, and conjugation of biomolecules with inorganic nanoparticles (NPs) can potentially be used to bridge this gap. Biological functions of living cells operate in the nanoscale and there is great potential in using bionanotechnology to discover new biomedical applications in diagnostics, drug delivery and cancer therapy. In this thesis, N-fluorenylmethoxycarbonyl (Fmoc)-protected peptides are explored as tethers to self-assemble gold NPs. Assembly is characterized by transmission electron microscopy, UV-visible spectroscopy, Raman spectroscopy, zeta potential measurements, dynamic light scattering and a new technique, Nanoparticle Tracking Analysis system (NTA). Solutions of gold NPs exhibit unique colour changes depending on their aggregation state, and the use of peptide-functionalised NPs (peptide-NPs) in a novel approach of protease sensing is developed here. Detection of the protease, Thermolysin from Bacillus thermoproteolyticus Rokko was demonstrated, and design of peptide-NPs was further optimized for detection of two medically relevant proteases, non-bindingto- alpha-chymotrypsin prostate specific antigen (nACT-PSA) and human neutrophil elastase (HNE). nACT-PSA and HNE are proteases related to prostate cancer and lung diseases respectively, and detection of PSA using the engineered peptide-NPs resulted in higher sensitivity than previously reported approaches. Surface enhanced Raman scattering was also used to monitor thermolysin action on peptide-NPs, in a novel approach which gave higher sensitivity than when using UVvisible spectroscopy for detection. The quartz crystal microbalance was also applied in complementary measurements to elucidate enzyme action on the peptides. The successful approach demonstrated here of using peptides to self-assemble gold NPs could pave new ways for the fabrication of small devices. Novel approaches of protease-sensing using peptide-NPs further illustrate potential of nanomaterials for new biomedical applications.