Abstract Oysters are a healthy and excellent source of lean protein (content up to 45%–57%). In addition, polypeptides extracted from hydrolysis of oyster protein by enzymatic hydrolysis or fermentation have diverse bioactivities, such as antioxidant, antimicrobial, antihypertensive, promoting sexual reproduction, anti‐inflammatory and anticancer. However, there are still great challenges in the preparation and characterisation of oyster polypeptides. Besides, the bioactivities and the corresponding underlying mechanisms of oyster peptides (OPs) have not yet been fully described. In order to obtain more specific peptides with potential bioactivities, optimisation of conditions employed during hydrolysis of oyster protein is therefore necessary, as well as the identification of the amino acid sequence and secondary structure of OPs. This review discusses latest research progress in preparation (including production, isolation and purification) and characterisation of OPs, with emphasis on their multiple bioactivities. Mechanisms underlying such bioactivities have also been presented. Comprehensive information about OPs could pave the way towards a functional development and more efficient utilisation of oysters. Collectively, there is growing evidence that OPs have potential health benefits. More research efforts are needed to determine their potential use in many contexts and ultimately develop more efficient and safer OP‐based products.