A new fluorescent sensor of dansylated tryptophan (DW) was synthesized using solid phase peptide synthesis (SPPS). Upon the addition of different metal ions, only the presence of Hg2+ induced an increase in DW fluorescence intensity with a blue shift from 550 to 496 nm. DW was highly sensitive and selective for detecting Hg2+ with a low detection limit of 6.53 nM in 20 mM HEPES buffer (pH 7.4). The turn-on response could be attributed to the combination of chelation enhanced fluorescence (CHEF) and solvatochromic effects. The binding constant of DW with Hg2+ ion was determined to be 9.4 × 104 M−1/2 with a stoichiometric ratio of 2: 1. The DW + Hg2+ complex can be reversed with EDTA and reused with excellent circulation effect. The fluorescence lifetime and absolute quantum yield of DW were studied before and after the addition of Hg2+. Further characterizations of the interaction between DW and Hg2+ were conducted by IR and NMR.