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In this study, oleaster seed hydrolysates (OSH) were prepared using different enzymes (Alcalase, trypsin, pancreatin, and pepsin). As a result, OSH generated by Alcalase was chosen for microencapsulation because it displayed the highest nutritional, biological, techno-functional, and antibacterial activities. The impact of spray-drying encapsulation using various biopolymeric carriers (Maltodextrin (MD), combination of MD with gum Arabic (GA), whey protein concentrate (WPC), and Pectin (P)) was then assessed in terms of production yield, physicochemical, functional, and morphological characteristics of the encapsulated OSH. Among the spray-dried samples, the powders produced by MD-WPC had the highest yield (57.40%), lowest hygroscopicity (26.03%), proper radical scavenging for DPPH− (82.8%) and ABTS+ (90.7%), and selected to incorporate into the pan-breads. Indices such as texture, volume, porosity, antioxidant activity, and color (crust and crumb) of breads were affected by the amount of added peptide. Finally, the microencapsulation of peptides in the carrier matrix (3% SD-powders) had a significant effect on bitterness masking of these compounds, maintaining the quality characteristics and sensory perception of pan-breads. The results of this study can be used to produce functional food formulations. [Display omitted] • The production of bioactive peptides was carried out from the oleaster seed protein. • The nutritional, antioxidant and antibacterial properties of OS-peptides were influenced by the type of enzyme. • Stabilization of peptides within biopolymers was investigated by spray-drying method. • The physicochemical, biological and structural stability of the spray-dried peptides were investigated. • The Encapsulation was an effective way to mask the bitterness of OS-peptides in the pan-breads. [ABSTRACT FROM AUTHOR]