The solid-state fermentation by effective microorganisms (containing photosynthetic bacteria, lactic acid bacteria, nitrogen-fixing bacteria, yeast and Bacillus sp.) improved the nutritive values of palm kernel meal (PKM). Increased crude protein (20.79%), nitrogen-free extract (40.07%) and gross energy (19.58%) were observed in fermented PKM (FPKM) relative to raw PKM while crude lipid (15.65%), crude fiber (36.45%) and ash (29.54%) were decreased. Replacement of soybean meal (SBM) with FPKM as a protein source was investigated for its effects in sex-reversed red tilapia (Oreochromis niloticus × O. mossambicus). The two-month-old fish (14.85 ± 0.28 g initial weight) were fed fish meal-SBM-based diets with replacement by FPKM at 25% (25FPKM), 50% (50FPKM), 75% (75FPKM) and 100% (100FPKM), while an FPKM-free diet (0FPKM) was used as a control. The five treatments, comprising triplicate cement ponds and forty fish each, were conducted in a recirculating system over 12 weeks. At the end of the feeding trial, fish fed the 50FPKM diet were superior in growth performance, while the feed utilization parameters were similar across all five treatments. Physiological adaptation of the protein-digesting (pepsin and trypsin) and lipid-digesting (lipase) enzymes was detected at all protein replacement levels (except for 25FPKM), as well as of the enzyme for cellulose digestion (cellulase), but not of the carbohydrate-digesting enzymes (amylase). Protein synthesis capacity in flesh was improved in fish fed the 50FPKM diet, while the quality of the main flesh proteins, actin and myosin, showed no significant differences across the five treatments. No differences in carcass composition and no negative effects on hematological parameters or liver histoarchitecture at the 50% replacement level of SBM by FPKM also support this alternative. Findings from the current study indicate the low-cost FPKM-containing diet for tilapia in comparison with control diet.