Peptides are important compounds used in the development of functional biomaterials, functional foods and nutraceuticals. The functional and bioactive properties of peptides are directly linked to their structural features, including molecular size, presence or absence of charges, amino acid sequence, hydrophobicity, and hydrophilicity. The role of peptide structures in their bioactivities and functionalities is still emerging. Some bioactive peptides have undesirable taste, which can influence consumer interests in novel peptide-based food applications. In this review, we discussed the role of peptide hydrophobicity in their bioavailability, bioactivity, bitterness property, emulsion stability, aggregation and self-assembly for application in novel food formulations and nutraceutical/ drug delivery.