Food-derived bioactive peptides are being used as important functional ingredients for health-promoting foods and nutraceuticals in recent times in order to prevent and manage several diseases thanks to their biological activities. Bioactive peptides are specific protein fractions, which show broad applications in cosmetics, food additives, nutraceuticals, and pharmaceuticals as antimicrobial, antioxidant, antithrombotic, and angiotensin-I-converting enzyme (ACE)-inhibitory ingredients. These peptides can preserve consumer health by retarding chronic diseases owing to modulation or improvement of the physiological functions of human body. They can also affect functional characteristics of different foods such as dairy products, fermented beverages, and plant and marine proteins. This manuscript reviews different aspects of bioactive peptides concerning their biological (antihypertensive, antioxidative, antiobesity, and hypocholesterolemic) and functional (water holding capacity, solubility, emulsifying, and foaming) properties. Moreover, the properties of several bioactive peptides extracted from different foods as potential ingredients to formulate health promoting foods are described. Thus, multifunctional properties of bioactive peptides provide the possibility to formulate or develop novel healthy food products.