To develop a multi-functional ingredient, the bioconversion of katsuobushi protein was optimized using Bacillus subtilis HA and Lactobacillus plantarum KS2020. The Dendropanax morbiferus extract (DME) culture with protease activity (102 unit/mL) was prepared by B. subtilis with 2% glucose and 1% skim milk through one day of alkaline fermentation. Katsuobushi protein was effectively hydrolyzed by the DME culture at 60°C for 3 hours, resulting in a tyrosine content of 156.85 mg%. Subsequently, a second lactic acid fermentation was carried out with 10% monosodium glutamate (MSG) using L. plantarum KS2020 to produce higher levels of GABA. Following co-cultivation for three days, DME exhibited a pH of 8.3 (0% acidity). After seven days, the viable cell count of L. plantarum increased to 9.33 CFU/mL, but viable Bacillus cells were not detected. Taken together, a multi-functional ingredient with enriched GABA, peptides, probiotics, and umami flavor was developed through lactic acid fermentation using hydrolyzed katsuobushi protein. These results indicate that katsuobushi protein could be used as a byproduct to produce a palatable protein hydrolysate using alkaline-fermented DME culture as a proteolytic enzyme source.