We investigated the Fe2+ chelating properties and the mechanism of improving Fe2+ bioavailability of the Fe2+ chelating peptide (GLPGPSGEEGKR, peptide-G-R). Fe2+ was chelated with the carboxyl oxygen atom of the Glu-Glu residue in the form of monodentate and bidentate chelating mode. After chelation, peptide-G-R was folded and aggregated to form spherical particles with increasing particle size. Peptide-G-R could increase the Fe2+ transport/retention/uptake rate and the relative expression levels of divalent metal transporter 1 (DMT1) in the Caco-2 cells monolayer model. Peptide-G-R could reverse the inhibition of phytic acid on the Fe2+ utilization in the Caco-2 cells monolayer model. Molecular dynamics simulation showed that peptide-G-R interacted with DMT1 in the form of intermolecular hydrogen bonds. The transport mechanism of the peptide-G-R-Fe2+ complex included endocytosis (main pathway), paracellular pathway (auxiliary way), and DMT1 (potential pathway). Thus, peptide-G-R derived from tilapia skin collagen could be used as a dietary iron supplement.