In this investigation, the antioxidant capacity of stirred-type hypoallergenic and lactose-free yogurt was improved using cylindra-type beetroot peel extract. Milk proteins were hydrolyzed with papain at different concentrations (0.008 g·L⁻¹ and 0.012 g·L⁻¹) and, subsequently, milk with papain-hydrolyzed proteins were fermented with yogurt starter culture with or without lactase. Antioxidants and betalains were extracted from beetroot peel using microwave heating-assisted water extraction. Extraction was performed considering different amounts of beetroot peel (10 g·L⁻¹, 30 g·L⁻¹ and 50 g·L⁻¹) and temperature-exposed times (1 min, 3 min, and 5 min) at 450 W power. The extract with highest antioxidant capacity was incorporated into papain-treated and starter culture-fermented yogurt at different amounts (10-, 20-, 30-, and 40-volume%). Papain hydrolysis of milk proteins followed by starter culture fermentation of milk significantly reduced the allergenicity of yogurt (>90% with 0.012 g·L⁻¹ of papain and lactase) than control. Addition of 30% beetroot peel extract after post-fermentation stage significantly enhanced the red colour intensity of yogurt. The antioxidant capacity of yogurts produced by hydrolysed milk proteins by 0.012 g·L⁻¹ of papain and starter culture fermentation with lactase was improved approx. 3.5-fold than control due to the addition of 40% beetroot peel extract after fermentation.