Chronic stress is a major inducer of anxiety and insomnia. Milk casein has been studied for its stress-relieving effects. We previously prepared a casein hydrolysate (CP) rich in the sleep-enhancing peptide YPVEPF, and this study aims to systemically investigate the different protective effects of CP and casein on dysfunction and anxiety/insomnia behavior and its underlying mechanisms in chronically stressed mice. Behavioral results showed that CP ameliorated stress-induced insomnia and anxiety more effectively than milk casein, and this difference in amelioration was highly correlated with an increase in GABA, 5-HT, GABA A , 5-HT 1A receptors, and BDNF and a decrease in IL-6 and NMDA receptors in stressed mice. Furthermore, CP restored these dysfunctions in the brain and colon by activating the HPA response, modulating the ERK/CREB-BDNF-TrκB signaling pathway, and alleviating inflammation. The abundant YPVEPF (1.20 ± 0.04%) and Tyr-based/Trp-containing peptides of CP may be the key reasons for its different effects compared to casein. Thus, this work revealed the main active structures of CP and provided a novel dietary intervention strategy for the prevention and treatment of chronic-stress-induced dysfunction and anxiety/insomnia behaviors.