Pepsin was first recognized in 1836 by the German physiologist Theodor Schwann. In 1930 it was crystallized and its protein nature established by John H. Northrop of the Rockefeller Institute for Medical Research.

Glands in the mucous-membrane lining of the stomach make and store an inactive protein called pepsinogen. Impulses from the vagus nerve and the hormonal secretions of gastrin and secretin stimulate the release of pepsinogen into the stomach, where it is mixed with hydrochloric acid and rapidly converted to the active enzyme pepsin. The digestive power of pepsin is greatest at the acidity of normal gastric juice (pH 1.5–2.5). In the intestine the gastric acids are neutralized (pH 7), and pepsin is no longer effective.

In the digestive tract pepsin effects only partial degradation of proteins into smaller units called peptides, which then either are absorbed from the intestine into the bloodstream or are broken down further by pancreatic enzymes.

Small amounts of pepsin pass from the stomach into the bloodstream, where it breaks down some of the larger, or still partially undigested, fragments of protein that may have been absorbed by the small intestine.

Pepsin is prepared commercially from swine stomachs. Crude pepsin is used in the leather industry to remove hair and residual tissue from animal hides prior to their being tanned. It is also used in the recovery of silver from discarded photographic films by digesting the gelatin layer that holds the silver compound.