Some reaction parameters were tested in the hydrolysis of casein by papain, in order to prepare hydrolysates with high oligopeptide contents, for either dietetic or pharmaceutical purposes. Five casein hydrolysates were prepared and then fractionated by size-exclusion HPLC. The rapid correct fraction area method was used for quantifying peptides and free amino acids. Among the five reaction conditions tested, three produced similar peptide profiles. However, the use of a temperature of 37 • C and an E:S ratio of 2% is probably the most economical condition for use in large-scale manufacture. With the aim of masking the bitterness of these preparations, a new method, based on the encapsulation in lipospheres, was used. Also, second derivative spectrophotometry was used for the first time to measure the extent of encapsulation of protein hydrolysates, which changed from 50% to 83%. Moreover, the efficiency of this system was evaluated by analysing other parameters, which showed a reduction of hydrophobicity and bitterness of all samples, as well as good chemical stability during 60 days of storage under refrigeration. The electron microscopical analysis of liposheres showed an average size around 5.0 ± 1.0 µm.