Protected dipeptides can be converted into cyclic ketoaminals, which can be subjected to palladium-catalyzed regioselective C-H functionalization. The best results are obtained using the 2-(methylthio)aniline (MTA) directing group, which is superior to the commonly used 8-aminoquinoline (AQ) group. No epimerization of stereogenic centers is observed. Subsequent cleavage of the directing and protecting groups allows the incorporation of a modified dipeptide into larger peptide chains.