Peeled potatoes should be submerged in water and stored in a sealed container in the refrigerator. The water keeps the potatoes from turning brown, and the cool temperature of the refrigerator keeps the cut potatoes from spoiling.
Potatoes turn brown when cut or peeled due to the presence of a certain enzyme called tyrosinase in their cells. When the potato flesh is cut, the enzyme leaks out of the cells and reacts with the oxygen in the air to turn the potato flesh brown. Keeping the cut surface of the potato under water prevents the enzyme from reacting with the air. Peeled potatoes should be used within 24 hours of peeling for best results.