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I am unsure for books but I know for certain that selected journal articles are peer-reviewed. (This just shows I am not in academia!)

Do books go through a peer-review process? If so, how does this happen?

If one is approached by a small publisher, does it matter if this publisher does not have a peer-review service (if there is one for books).

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Typically, after an author presents a book proposal to a publisher, the publisher will circulate the proposal to some selected reviewers to vet the content. This is not like peer review in the usual sense: the reviewers only get to see the outline and maybe a chapter or two.

Once the publisher decides to go ahead with the book and it goes through the editing process, it might undergo further review, but nothing like a journal review.

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    Journals (generally) have too many papers, and need to cut down. Book publishers (in my experience) have too many people who never finish books. – Jeremy Miles Sep 16 '13 at 3:01
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I guess this is field-dependent because my experience (in math) is different from what is presented in the other answers. At the very least, some book series by some publishers have a peer-review process similar to that of journals for books that are about new research (not textbooks or similar material). The editors would give the whole book to several referees and ask each of them a report about the mathematical correctness, the context, the presentation, etc. There can even be a similar editorial process as the one for articles, with a back-and-forth of corrections and new reports. Sometimes referees would only each be asked about some part of the book, but each part would be covered by at least one referee. I would guess that this does not concern textbooks or "survey" type books, but my experience there is limited.

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The major textbook publishers pay for "subject matter expert" reviews of completed books prior to publication, and even of new editions of previously-reviewed books. Some reviewers apparently just submit the publisher's questionnaire. Others, like myself, submit extensive comments. I've proposed corrections that were accepted for books by well-known authors.

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