Gold nanoparticles (AuNPs) are increasingly used in biomedical applications, hence understanding the processes that affect their biocompatibility and stability are of significant interest. In this study, we assessed the stability of peptide-capped AuNPs and used the embryonic zebrafish (Danio rerio) as a vertebrate system to investigate the impact of synthesis method and purity on their biocompatibility. Using glutathione (GSH) as a stabilizer, Au-GSH nanoparticles with identical core sizes were terminally modified with Tryptophan (Trp), Histidine (His) or Methionine (Met) amino acids and purified by either dialysis or ultracentrifugation. Au-GSH-(Trp)2 purified by dialysis elicited significant morbidity and mortality at 200 μg/mL, Au-GSH-(His)2 induced morbidity and mortality after purification by either method at 20 and 200 μg/mL, and Au-GSH-(Met)2 caused only sublethal responses at 200 μg/mL. Overall, toxicity was significantly reduced and ligand structure was improved by implementing ultracentrifugation purifications at several stages during the multi-step synthesis and surface modification of Au-GSH nanoparticles. When carefully synthesized at high purity, peptide-functionalized AuNPs showed high biocompatibility in biological systems.