Protein hydrolysates from grass carp skin were obtained by enzymatic hydrolysis using Alcalase®. Hydrolysis was performed using the pH-stat method. The hydrolysis reaction was terminated by heating the mixture to 95 °C for 15 min. At 5.02%, 10.4%, and 14.9% degree of hydrolysis (DH), the hydrolysates were analyzed for functional properties. The protein hydrolysates had desirable essential amino acid profiles. Results demonstrated that the hydrolysates had better oil holding and emulsifying capacity at low DH. The water holding capacity increased with increased levels of hydrolysis. Enzymatic modification was responsible for the changes in protein functionality. These results suggest that grass carp fish skin hydrolysates could find potential use as functional food ingredients as emulsifiers and binder agents.