Remus: "...he thought I was the spy, Peter. I assume that's why you didn't tell me, Sirius?"
Sirius: "Forgive me, Remus."
— Remus and Sirius reflecting on the first wizarding war while confronting Pettigrew.
In the first wizarding war James and Sirius had come to distrust Remus and also James and Lily Potter wanted to use Sirius as their Secret-Keeper, but Sirius thought that would be too obvious, and thus suggested Peter Pettigrew instead.
Why did they distrust Lupin and trust Pettigrew?
"I thought it was the perfect plan . . . a bluff. . . . Voldemort would be sure to come after me, would never dream they’d use a weak, talentless thing like you..."
Sirius said in Prisoner of Azkaban, referring to Peter. I've always thought that's why Peter was chosen, not Remus. – Sumit Jul 18 '14 at 8:04