Interactive teaching in physical education has some effect on peer relationship and physical and mental development of college students. By way of literature review, interviews with experts, questionnaires and experiments, the effect of interactive teaching in physical education on college students' peer relationship and physical and mental development is analyzed to provide a new perspective on physical and mental health education in colleges. The results show that interactive teaching can improve college students' multi-dimensional interactive cooperation, and significant differences exist among the three dimensions: willingness to group, help and guidance, and conflict resolution strategy. The first two dimensions reach a very significant level of difference, and the dimension of intimate exposure and communication reaches a significant level of difference. All dimensions can obviously improve college students' psychological and mental state.