A novel papain‐catalyzed acylation between N‐acetyl‐L‐homocysteine thiolactone (AHTL) and terminal or side‐chain amino groups of soy protein resulted in covalent introduction of new sulfhydryl groups and the improvement of protein functionalities. Acylation was carried out with 10% soy protein, 1% AHTL and 0.1% papain (w/v) in the presence of L‐cysteine and EDTA as activators for papain, and incubated at pH 10.0 and 20°C for 8 hr. It was proposed that acylation was a two‐step process, involving fast transthioesterification to form an acyl thioenzyme, and a subsequent aminolysis step between the acyl thioenzyme and the amino groups of protein yielding peptide or isopeptide linkages. Solubility, emulsifiability, foamability and some Theological properties of the modified soy protein increased with increase in degree of acylation. Only foam stability decreased.