Milk proteins exert a wide range of nutritional, functional and biological activities. Many milk proteins possess specific biological properties that make these components potential ingredients of health-promoting foods. Increasing attention is being focused on physiologically active peptides derived from milk proteins. These peptides are inactive within the sequence of the parent protein molecule and can be liberated by (1) gastrointestinal digestion of milk, (2) fermentation of milk with proteolytic starter cultures or (3) hydrolysis by proteolytic enzymes. Milk protein derived peptides have been shown in vivo to exert various activities affecting, e.g., the digestive, cardiovascular, immune and nervous systems. Studies have identified a great number of peptide sequences with specific bioactivities in the major milk proteins and also the conditions for their release have been determined. Industrial-scale technologies suitable for the commercial production of bioactive milk peptides have been developed and launched recently. These technologies are based on novel membrane separation and ion exchange chromatographic methods being employed by the emerging dairy ingredient industry. A variety of naturally formed bioactive peptides have been found in fermented dairy products, such as yoghurt, sour milk and cheese. The health benefits attributed to peptides in these traditional products have, so far, not been established, however. On the other hand, there are already a few commercial dairy products supplemented with milk protein-derived bioactive peptides whose health benefits have been documented in clinical human studies. It is envisaged that this trend will expand as more knowledge is gained about the multifunctional properties and physiological functions of milk peptides.