One of the conventional ways to produce lactose-hydrolyzed (LH) milk is via the addition of commercial lactases into heat-treated milk in which lactose is hydrolyzed throughout storage. This post-hydrolysis method can induce proteolysis in milk proteins due to protease impurities remaining in commercial lactase preparations. In this work, the interplay between lactose hydrolysis, proteolysis, and glycation was studied in a model system of purified β-casein (β-CN), lactose, and lactases using peptidomic methods. With a lactase presence, the proteolysis of β-CN was found to be increased during storage. The protease side-activities mainly acted on the hydrophobic C-terminus of β-CN at Ala, Pro, Ile, Phe, Leu, Lys, Gln, and Tyr positions, resulting in the formation of peptides, some of which were N-terminal glycated or potentially bitter. The proteolysis in β-CN incubated with a lactase was shown to act as a kind of “pre-digestion”, thus increasing the subsequent in vitro digestibility of β-CN and drastically changing the peptide profiles of the in vitro digests. This model study provides a better understanding of how the residual proteases in commercial lactase preparations affect the quality and nutritional aspects of β-CN itself and could be related to its behavior in LH milk.