Milk-derived bioactive peptides have been identified as potential ingredients of health-promoting functional foods. These bioactive peptides are targeted at diet-related chronic diseases especially the non-communicable diseases viz., obesity, cardiovascular diseases and diabetes. Peptides derived from the milk of cow, goat, sheep, buffalo and camel exert multifunctional properties, including anti-microbial, immune modulatory, anti-oxidant, inhibitory effect on enzymes, anti-thrombotic, and antagonistic activities against various toxic agents. Majority of those regulate immunological, gastrointestinal, hormonal and neurological responses, thereby playing a vital role in the prevention of cancer, osteoporosis, hypertension and other disorders as discussed in this review. For the commercial production of such novel bioactive peptides large scale technologies based on membrane separation and ion exchange chromatography methods have been developed. Separation and identification of those peptides and their pharmacodynamic parameters are necessary to transfer their potent functional properties into food applications. The present review summarizes the preliminary classes of bioactive milk-derived peptides along with their physiological functions, general characteristics and potential applications in health-care.