This study was designed to clarify the mechanisms of hypocholesterolemic action of beta-lactoglobuline tryptic hydrolysate (LTH) and to identify the novel hypocholesterolemic peptide derived from LTH by screening using Caco-2 cells and animal studies. Serum and liver cholesterol levels were significantly lower in rats fed LTH than in those fed casein tryptic hydrolysate (CTH). The present study suggests that the inhibition of micellar solubility of cholesterol which causes the suppression of cholesterol absorption by a direct interaction between cholesterol mixed micelles, and LTH in the jejunal epithelia is part of the mechanism underlying the hypocholesterolemic action of LTH. Though no one could trace the hypocholesterolemic peptide to any protein origin, we identified, for the first time, a novel hypocholesterolemic peptide, Ile-Ile-Ala-Glu-Lys (IIAEK). Surprisingly, the present study provides the first direct evidence that a new hypocholesterolemic peptide derived from beta-lactoglobuline can powerfully influence serum cholesterol levels and exhibit a greater hypocholesterolemic activity in comparison with that of medicine, beta-sitosterol, in animal studies.