The active ingredient in Lactaid is lactase, a digestive enzyme that breaks down the kind of sugar found in milk. Lactase is naturally made by the body of all infant animals that nurse from their mothers, but adult animals and many adult humans do not produce this enzyme past weaning.
The lactase in Lactaid comes from Aspergillus oryzae, a fungus widely used in food production, especially in traditional Asian cuisine. Lactase is generally considered safe and prevents bloating, diarrhea and cramps in response to eating or drinking dairy. These gastrointestinal effects are caused by lactose, a sugar. Some people can digest lactose into adulthood, but many people cannot and are lactose intolerant. Lactase consumption, in the form of Lactaid or similar medications, rectifies this by providing the proper enzyme for breaking lactose down once it hits the small intestine.