Enzymatic hydrolysis of dairy proteins increases their nutritional and biological value while reducing their allergenic potential. The subsequent complexation of peptides with cyclodextrins (CDs) reduces the bitterness of the hydrolyzed proteins. The research objective was to obtain hydrolysates of whey proteins and their cyclodextrin inclusion complexes with peptides, as well as to describe the peptide composition of the cleaved dairy proteins, biological activity, and sensory profile of the hydrolysates and inclusion complexes. The research featured enzymatic whey protein hydrolysates with an extensive hydrolysis degree and their inclusion complexes with β- and γ-CDs. Dairy proteins were hydrolyzed with alcalase, and the hydrolysates obtained were subjected to micro- and ultrafiltration (cut-off limit – 10 kDa). The peptide composition of the hydrolyzed proteins was determined by the methods of high-performance liquid chromatography and chromatography-mass spectrometry. The antimutagenic activity was evaluated using the Ames test whereas the antibacterial effect was studied with the impedimetric method. The antioxidant activity was detected with fluorimetry and spectrophotometry. The method of competitive enzyme immunoassay was applied to reveal the antigenic properties. The bitterness of the experimental sample s was determined by a sensory evaluation. The research delivered the optimal modes for whey protein cleavage with alcalase that made it possible to achieve efficient micro- and ultrafiltration. The resulting hypoallergenic peptide fractions and their inclusion complexes with β- and γ-CDs possessed antioxidant, antibacterial, and antimutagenic properties. The whey proteolysis and subsequent filtration with/without tindalization demonstrated a 265/589-fold decrease in the residual antigenicity. The fluorimetric method showed a 1.79/1.90-fold increase in the antioxidant activity of the hydrolysate in complexes with β- and γ-CDs. Binding of β-CDs to peptides enhanced their antimicrobial activity against Escherichia coli ATCC 8739 and Staphylococcus aureus ATCC 6538. The hydrolysate samples with β-CDs showed less bitterness. Whey proteolysis with alcalase under optimized conditions and subsequent fractionation resulted in a product with high consumer qualities. Enzymatic hydrolysates of dairy proteins and their CD inclusion complexes were able to substitute native protein components. Their bioactive properties, good taste, and low allergenic potential mean good prospects for the functional food industry.