In living cells, reactions take place in membrane-bound compartments, often in response to changes in the environment. Learning how the reactions are influenced by this compartmentalization will help us gain an optimal understanding of living organisms at the molecular level and, at the same time, will offer vital clues on the behavior of simple compartmentalized systems, such as prebiotic precursors of cells and cell-inspired artificial systems. In this work we show that a reactive building block (an activated amino acid derivative) trapped in the cavity of a liposome is protected against hydrolysis and reacts nearly quantitatively with another building block, which is membrane-permeable and free in solution, to form the dipeptide. By contrast, when the activated amino acid is found outside the liposome, hydrolysis is the prevalent reaction, showing that the cavity of the liposomes promotes the formation of peptide bonds. We attribute this result to the large lipid concentration in small compartments from the point of view of a membrane-impermeable molecule. Based on this result, we show how the outcome of the reaction can be predicted as a function of the size of the compartment. The implications of these results on the behavior of biomolecules in cell compartments, abiogenesis, and the design of artificial cell-inspired systems are considered.