This study proposes an approach for solving density-based multi-material topology optimization of cracked structures using Peridynamics. The alternating active-phase algorithm is utilized to transform the multi-material problem into a series of binary phase topology optimization sub-problems. Instead of the conventional mesh-based methods, the Peridynamics theory (PD) is used as a tool to model the behaviour of the materials and solve for the displacement field. The most significant advantage of PD is its ability to model discontinuities in a relatively straightforward manner. Thus, in the present work, the effect of cracks as a discontinuity is investigated on the optimal multi-material topologies. The Solid Isotropic Material with Penalty (SIMP) method is utilized to define the material properties as a function of the design variables. Also, the optimization problem is solved through the Optimality Criteria (OC) approach. The proposed method is compared to the results reported in the literature by executing three numerical examples that investigate the effect of the direction of an interior crack on the optimal topologies. Moreover, the efficiency of the proposed approach is verified by solving several examples where we aim at minimizing the compliance of the structure with and without initial cracks.