The aim of this work was to study the production of bioactive protein hydrolysates using yeasts isolated from chhurpi. For this, a total of 125 proteolytic yeasts were isolated and molecular identification was carried out by analysis of the restriction digestion pattern generated by digesting the PCR amplified internal transcribed spacer region and 5.8S rRNA gene (ITS1-5.8S-ITS2) using three endonucleases (HaeIII, CfoI and HinfI). The results obtained showed that different proteolytic yeasts were dominant in marketed products (Kluyveromyces marxianus and Issatchenkia orientalis) and samples from production centers (Trichosporon asahii, Saccharomyces cerevisiae and Exophiala dermatitidis). Proteolytic strains in individual groups showed their ability to hydrolyze milk protein and enhance antioxidant property. Among the isolates, fermentation using K. marxianus YMP45 and S. cerevisiae YAM14 resulted in higher antioxidant activity. This is the first report on application of yeast isolated from fermented food of North-East India for the production of bioactive protein hydrolysate.