Functional papermaking additives have tremendous potential for application in multipurpose paper. In this research, a functional paper internal sizing agent based on waterborne polyurethane-grafted collagen hydrolysate (WPUC) was first prepared via free-radical emulsion polymerization of vinyl monomer-modified collagen hydrolysate and waterborne polyurethane (WPU). Then, the prepared WPUC was used as an internal sizing agent for sustainable processing and manufacturing of the handsheets. FTIR, XRD, DSC, and other analytical techniques were used to characterize the behavior and effects of WPUC internal sizing on the handsheets. The research found that the tensile coefficient, the tear coefficient, the folding resistance, and Cobb60 of the handsheets reached 55.8 N.m.g–1, 1.9 mN.m2.g–1, 12 times, and 190 g/m2, respectively, when the WPUC sizing agent was 2% in the pulp. In addition, when the precipitated calcium carbonate (PCC) and WPUC were incorporated in the pulp, the retention rate of PCC could be greatly increased without affecting the mechanical properties of the finished paper. Specifically, when the PCC dosages were 25 and 50% in the papermaking, the PCC retention rate of handsheets with the WPUC sizing agent increased correspondingly by 139.2 and 174.5%, respectively. Moreover, the handsheets had good water resistance. The results indicate that the WPUC is expected to be used as a novel paper internal sizing agent to further improve the paper performance as well as lower the production costs.