A large variety of peptides are generated in the gut lumen during normal digestion of dietary proteins. Large quantities of small peptides (ie. dipeptides and tripeptides) are absorbed through the gut mucosa and represent the primary mechanism for absorption of dietary nitrogen. However, larger peptide fragments are also absorbed with absorption decreasing with increasing chain length. Many of these dietary peptides have been shown to have biologic activity and many are active in microgram quantities. These peptides may modulate neural, endocrine, and immune function. In this report, we review normal protein digestion and absorption. We then discuss the biological actions of the amino acids arginine and glutamine and the biologic actions of a variety of dietary derived peptides. We concentrate on the immune effects of these peptides. We illustrate the potency of dietary peptides with a discussion of the cardiovascular effects of carnosine. We also review biologic effects of different protein sources, which generate different peptide profiles during digestion. The implications of dietary peptides for modulation of disease are discussed.