The physicochemical mechanism of protease-catalyzed peptide synthesis in heterogenous eutectic mixtures of substrates has been examined by a combination of microscopic techniques. Using a number of model reactions of dipeptide amide synthesis, it was determined that liquid phase catalysis was mostly, if not exclusively, responsible for the observed conversion of substrates. Furthermore, the formation of liquid or semiliquid eutectics was an important requirement for the occurrence of those reactions where both substrates were solids in the pure state. The addition of small quantities of hydrophilic solvents (adjuvants) often resulted in significant improvements in the rates and yields of the reactions. This was due to the ability of these adjuvants to promote the formation of eutectics, thereby increasing the proportion, as well as affecting the composition and properties of the liquid phase.