Fluorescent protein-based biosensors have considerable application in cell biology, proteomics, and immunochemistry. The creation of such biosensors requires a stable fluorescent protein scaffold capable of accommodating loops that confer binding. This has been attempted by several laboratories but with limited success. In our approach, we selected green fluorescent protein (GFP) as the protein scaffold. We studied the ability of the GFP scaffold to accommodate amino acid insertions at two different positions on GFP. Since the GFP scaffold with binding loops inserted at both locations was not expressed by yeast, we successfully utilized directed evolution using yeast surface display to evolve the scaffold to be well expressed and fluorescent. Our studies led us to examine protein folding and chromophore stability and we utilized both aspects as selection criteria for directed evolution. We subsequently randomized the inserted amino acids to create a library of GFP-based biosensors. This study provides novel insight into the engineering strategies of intrinsically fluorescent proteins and provides a platform for the development of the next generation of sensors.