Earthworms are valued as a dietary protein source in many regions. Earthworm protein can yield bioactive peptides, but enzymatic hydrolysis is inefficient by commercial proteases, and bioactivity development is still inadequate. This study developed a novel efficient method for degrading earthworm protein and investigated the lipid-lowering activity and mechanism of earthworm peptides. It was found that combining autolysis and alcalase exhibited a higher hydrolysis degree of earthworm protein of 43.64 ± 0.78% compared to using autolysis or alcalase only. The hydrolysate significantly reduced lipid accumulation in steatotic hepatocytes. LC-MS/MS results showed that the primary lipid-lowering peptides (EWPs) in the hydrolysate were small molecule peptides with molecular weights of 500-1000 Da and chain lengths of 4-7 amino acid residues. Western blot results demonstrated that EWP regulated the expression of lipid metabolism-related proteins, including APOC3, HMGCR, PCSK9, SREBP1, C/EBP-α, NPC1L1, PPAR-γ, and CYP7A1. Transcriptomic analysis and validation experiments indicated that the lipid-lowering activity of EWP was associated with its suppression of inflammatory factors, such as IL-6. This study presents an efficient enzymatic hydrolysis strategy for earthworm protein utilization, laying the foundation for its application in functional foods such as protein supplements, nutraceutical capsules, hypoallergenic infant formulas, and sports nutrition products.