Recent advancements in tissue engineering and regenerative medicine have introduced promising strategies to address tissue and organ deficiencies. This review highlights the critical role of short peptides, particularly their ability to self-assemble into matrices that mimic the extracellular matrix (ECM). These low molecular weight peptides exhibit target-specific activities, modulate gene expression, and influence cell differentiation pathways. They are stable, programmable, non-cytotoxic, biocompatible, biodegradable, capable of crossing the cell membrane and easy to synthesize. This review underscores the importance of peptide structure and concentration in directing stem cell differentiation and explores their diverse biomedical applications. Peptides such as Aβ1-40, Aβ1-42, RADA16, A13 and KEDW are discussed for their roles in modulating stem cell differentiation into neuronal, glial, myocardial, osteogenic, hepatocyte and pancreatic lineages. Furthermore, this review delves into the underlying signaling mechanisms, the chemistry and design of short peptides and their potential for engineering biocompatible materials that mimic stem cell microenvironments. Short peptide-based biomaterials and scaffolds represent a promising avenue in stem cell therapy, tissue engineering, and regenerative medicine.