Protein folding/misfolding in vivo takes place in a highly crowded and confined environment. Such crowded environment can possibly lead to fewer water molecules surrounding a protein of interest than that seen under in vitro conditions wherein typically dilute aqueous solutions are used. When considering the aforesaid cellular characteristics, such as water depletion and macromolecular crowding; it is reasonable to assume that proteins may experience different energy landscapes when folding in vivo than in vitro. Therefore, we have investigated how degrees of hydration and macromolecular crowding affect the conformation, aggregation and folding kinetics of short peptides. In order to modulate the number of water molecules accessible to the peptide molecules of interest, we encapsulated the peptides in the aqueous core of reverse micelles formed by sodium bis(2-ethylhexyl)sulfosuccinate (AOT) and isooctane (IO) at different water loadings. Using this reverse micellar platform, we systematically studied the conformation and aggregation properties of alanine-based peptides and amyloid forming segments derived from amyloid beta peptides and yeast prion protein Sup35 at different hydration levels. Our studies demonstrated that limited hydration facilitates aggregate formation in these peptides and that removal of water imposes a free energy barrier to peptide association and aggregation. These studies have implications for understanding aggregate/amyloid formation in vivo where macromolecular crowding can change the solvation status of the peptides. Furthermore, we examined how the folding dynamics of secondary/supersecondary structural elements are modulated by a crowded environment in comparison to that of dilute aqueous solutions. To this effect we studied the thermal stability and folding-unfolding kinetics of three small folding motifs, i.e., a 34-residue alpha-helix, a 34-residue cross-linked helix-turn-helix, and a 16-residue beta-hairpin, in the presence of crowding agents (i.e. inert high mass polymers). Our results indicate that the folding-unfolding transition of alpha-helical peptides is insensitive to macromolecular crowding. However, we find that crowding leads to an appreciable decrease in the folding rate of the shortest beta-hairpin peptide. We propose a model considering both the static and dynamic effects arising from the presence of the crowding agent to rationalize these results.