Surface engineering of a hydrogel nanoparticle (NP) with the tumor-targeting ligand, F3 peptide, enhances both the NP's binding affinity for, and internalization by, nucleolin overexpressing tumor cells. Remarkably, the F3-functionalized NPs consistently exhibited significantly lower trafficking to the degradative lysosomes than the non-functionalized NPs, in the tumor cells, after internalization. This is attributed to the non-functionalized NPs, but not the F3-functionalized NPs, being co-internalized with Lysosome-associated Membrane Protein-1 (LAMP1) from the surface of the tumor cells. Furthermore, it is shown that the intracellular trafficking of the F3-functionalized NPs differs significantly from that of the molecular F3 peptides (untethered to NPs). This has important implications for designing effective, chemically-responsive, controlled-release and multifunctional nanodrugs for multi-drug-resistant cancers.