Recent years have witnessed growing interest in the role of peptides in animal nutrition. Chemical, enzymatic, or microbial hydrolysis of proteins in animal by-products or plant-source feedstuffs before feeding is an attractive means of generating high-quality small or large peptides that have both nutritional and physiological or regulatory functions in livestock, poultry and fish. These peptides may also be formed from ingested proteins in the gastrointestinal tract, but the types of resultant peptides can vary greatly with the physiological conditions of the animals and the composition of the diets. In the small intestine, large peptides are hydrolyzed to small peptides, which are absorbed into enterocytes faster than free amino acids (AAs) to provide a more balanced pattern of AAs in the blood circulation. Some peptides of plant or animal sources also have antimicrobial, antioxidant, antihypertensive, and immunomodulatory activities. Those peptides which confer biological functions beyond their nutritional value are called bioactive peptides. They are usually 2–20 AA residues in length but may consist of >20 AA residues. Inclusion of some (e.g. 2–8%) animal-protein hydrolysates (e.g., porcine intestine, porcine mucosa, salmon viscera, or poultry tissue hydrolysates) or soybean protein hydrolysates in practical corn- and soybean meal-based diets can ensure desirable rates of growth performance and feed efficiency in weanling pigs, young calves, post-hatching poultry, and fish. Thus, protein hydrolysates hold promise in optimizing the nutrition of domestic and companion animals, as well as their health (particularly gut health) and well-being.