Morpho-butterfly is well-known for the blue colouration in its tiny wing scales and finds applications in colour filters, anti-reflecting coatings and optical devices. Herein, the structural optical properties of the Morpho peleides-butterfly wing scales were examined through light reflection, diffraction and optical diffusion. The light diffraction property from wing scales was investigated through experiments and computation modelling. Broadband reflection variation was observed from different parts of the dorsal wings at broadband light illumination due to tiny structural variations, as verified by electronic microscopic images. The periodic nanostructures showed well-defined first-order diffraction through monochromatic (red, green and blue) and broadband light at normal illumination. Polyvinyl alcohol (PVA) embedded with Morpho peleides-butterfly wing scales acts as an optical diffuser to produce soft light. Light diffraction and diffusion properties were measured by angle-resolve experiments, followed by computational modelling. The maximum optical diffusion property at ∼185° from the wing scales was observed using broadband light at normal illumination. Finally, Morpho peleides-butterfly based submicron nanostructures were utilized to demonstrate bio-inspired chemical sensing.