Prodrug strategies that facilitate localized and controlled activity of small-molecule therapeutics can reduce systemic exposure and improve pharmacokinetics, yet limitations in activation chemistry have made it difficult to assign tunable multifunctionality to prodrugs. Here, we present the design and application of a modular small-molecule caging strategy that couples bioorthogonal cleavage with a self-immolative linker and an aliphatic anchor. This strategy leverages recently discovered in vivo catalysis by a nanoencapsulated palladium compound (Pd-NP), which mediates alloxylcarbamate cleavage and triggers release of the activated drug. The aliphatic anchor enables >90% nanoencapsulation efficiency of the prodrug, while also allowing >104-fold increased cytotoxicity upon prodrug activation. We apply the strategy to a prodrug formulation of monomethyl auristatin E (MMAE), demonstrating its ability to target microtubules and kill cancer cells only after selective activation by Pd-NP. Computational pharmacokinetic modeling provides a mechanistic basis for the observation that the nanotherapeutic prodrug strategy can lead to more selective activation in the tumor, yet in a manner that is more sensitive to variable enhanced permeability and retention (EPR) effects. Combination treatment with the nanoencapsulated MMAE prodrug and Pd-NP safely blocks tumor growth, especially when combined with a local radiation therapy regimen that is known to improve EPR effects, and represents a conceptual step forward in prodrug design.