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Background Conservation of genetic diversity is an essential prerequisite for developing new cultivars with desirable agronomic traits. Although a large number of germplasm collections have been established worldwide, many of them face major difficulties due to large size and a lack of adequate information about population structure and genetic diversity. Core collection with a minimum number of accessions and maximum genetic diversity of pepper species and its wild relatives will facilitate easy access to genetic material as well as the use of hidden genetic diversity in Capsicum. Results To explore genetic diversity and population structure, we investigated patterns of molecular diversity using a transcriptome-based 48 single nucleotide polymorphisms (SNPs) in a large germplasm collection comprising 3,821 accessions. Among the 11 species examined, Capsicum annuum showed the highest genetic diversity (HE = 0.44, I = 0.69), whereas the wild species C. galapagoense showed the lowest genetic diversity (HE = 0.06, I = 0.07). The Capsicum germplasm collection was divided into 10 clusters (cluster 1 to 10) based on population structure analysis, and five groups (group A to E) based on phylogenetic analysis. Capsicum accessions from the five distinct groups in an unrooted phylogenetic tree showed taxonomic distinctness and reflected their geographic origins. Most of the accessions from European countries are distributed in the A and B groups, whereas the accessions from Asian countries are mainly distributed in C and D groups. Five different sampling strategies with diverse genetic clustering methods were used to select the optimal method for constructing the core collection. Using a number of allelic variations based on 48 SNP markers and 32 different phenotypic/morphological traits, a core collection ‘CC240’ with a total of 240 accessions (5.2 %) was selected from within the entire Capsicum germplasm. Compared to the other core collections, CC240 displayed higher genetic diversity (I = 0.95) and genetic evenness (J’ = 0.80), and represented a wider range of phenotypic variation (MD = 9.45 %, CR = 98.40 %). Conclusions A total of 240 accessions were selected from 3,821 Capsicum accessions based on transcriptome-based 48 SNP markers with genome-wide distribution and 32 traits using a systematic approach. This core collection will be a primary resource for pepper breeders and researchers for further genetic association and functional analyses. Electronic supplementary material The online version of this article (doi:10.1186/s12863-016-0452-8) contains supplementary material, which is available to authorized users.