In the early 1900s, chemical messengers were crudely extracted from whole animal brains and tissues and studied for their physiological effects. In 1931, von Euler and Gaddum, used a similar method to try and isolate acetylcholine but instead discovered a peptide substance that induced physiological changes including muscle contractions and depressed blood pressure. These effects were not abolished using atropine, ruling out the substance as acetylcholine. 
In insects, proctolin was the first neuropeptide to be isolated and sequenced. In 1975, Alvin Starratt and Brian Brown extracted the peptide from hindgut muscles of the cockroach and found that its application enhanced muscle contractions. While Starratt and Brown initially thought of proctolin as an excitatory neurotransmitter, proctolin was later confirmed as a neuromodulatory peptide.
David de Wied first used the term "neuropeptide" in the 1970s to delineate peptides derived from the nervous system.