NMR-based biosensors that utilize laser-polarized xenon offer potential advantages beyond current sensing technologies. These advantages include the capacity to simultaneously detect multiple analytes, the applicability to in vivo spectroscopy and imaging, and the possibility of "remote" amplified detection. Here, we present a detailed NMR characterization of the binding of a biotin-derivatized caged-xenon sensor to avidin. Binding of "functionalized" xenon to avidin leads to a change in the chemical shift of the encapsulated xenon in addition to a broadening of the resonance, both of which serve as NMR markers of ligand-target interaction. A control experiment in which the biotin-binding site of avidin was blocked with native biotin showed no such spectral changes, confirming that only specific binding, rather than nonspecific contact, between avidin and functionalized xenon leads to the effects on the xenon NMR spectrum. The exchange rate of xenon (between solution and cage) and the xenon spin-lattice relaxation rate were not changed significantly upon binding. We describe two methods for enhancing the signal from functionalized xenon by exploiting the laser-polarized xenon magnetization reservoir. We also show that the xenon chemical shifts are distinct for xenon encapsulated in different diastereomeric cage molecules. This demonstrates the potential for tuning the encapsulated xenon chemical shift, which is a key requirement for being able to multiplex the biosensor.