A peptide preparation has been obtained starting from defatted milk, which has bioactive peptides. K-Casein was prepared from bovine casein milk by acidified urea and ammonium sulphate precipitation. The K-casein obtained was subjected to dialysis and lyophilization and further used for hydrolysis using 1-2% fungal protease. The degree of hydrolysis of the protein hydrolysate was 26- 28% and subjected to separation using size exclusion chromatography and finally by RP-HPLC. The molecular weight of the peptide fraction lies in the range of 1000-2000 Daltons. The obtained peptide fraction had ACE inhibition, and anti microbial activity.