Liquid-liquid phase separation (LLPS) is a cornerstone of cellular organization, driving the formation of biomolecular condensates that regulate diverse biological processes and inspire innovative applications. This review explores the molecular mechanisms underlying peptide-mediated LLPS, emphasizing the roles of intermolecular interactions such as hydrophobic effects, electrostatic interactions, and π-π stacking in phase separation. The influence of environmental factors, such as pH, temperature, ionic strength, and molecular crowding on the stability and dynamics of peptide coacervates is examined, highlighting their tunable properties. Additionally, the unique physicochemical properties of peptide coacervates, including their viscoelastic behavior, interfacial dynamics, and stimuli-responsiveness, are discussed in the context of their biological relevance and engineering potential. Peptide coacervates are emerging as versatile platforms in biotechnology and medicine, particularly in drug delivery, tissue engineering, and synthetic biology. By integrating fundamental insights with practical applications, this review underscores the potential of peptide-mediated LLPS as a transformative tool for advancing science and healthcare.