Enzymatic hydrolysis of food proteins is a common method for the production of bioactive peptides. The peptides generated have novel physico-chemical properties which affect functionality. Current knowledge on the functionality of milk protein hydrolysates at emulsion and foam interfaces is reviewed. The hydrolysis parameters exerting an impact on the ability of milk proteins to form and stabilize food colloidal structures are discussed. Recent findings indicate that modification of milk proteins via enzymatic hydrolysis could be beneficial in terms of peptide functionality at interfaces, provided that the process is carefully controlled. Depending on the parental protein the extent of hydrolysis, pH and the choice of a suitable enzyme are the most important factors, which singly or in combination, need to be taken into account for achieving optimum functionality. Failure to optimize the level of protein modification can have detrimental effects with respect to peptide adsorption and emulsion or foam stability.