Aim: The aim of this study was to encapsulate red pepper waste (RPW) bioactives and monitor their stability in yogurt. Methods: RPW extract was encapsulated in whey protein using spray and freeze-drying techniques. Physicochemical characteristics of encapsulates were evaluated, and better encapsulates were used to develop functional yogurt. Retention of bioactives was followed over 21?days of storage, and sensory analyses were assessed. Results: Freeze-dried encapsulates (FDE) showed better characteristics like water activity, moisture content, solubility, flowing and colour properties, and, therefore, incorporated in yogurt. Yogurt with FDE successfully retained carotenoids (71.43%) and caused increasing of polyphenol retention (up to 123.73%). This yogurt exhibited higher sensory and general acceptability scores compared to control sample. The fortification of yogurts had a positive influence on maintaining the initial number of lactic acid bacteria during storage. Conclusion: Freeze drying and utilisation of pepper waste are efficient for functional food development, with improved nutritional, colour and bioactive properties.