Chitinous fishery by-products have great application in the production of various bioactive compounds. In this study, Paenibacillus elgii TKU051, a protease-producing bacterial strain, was isolated using a medium containing 1% squid pens powder (SPP) as the sole carbon/nitrogen (C/N) source. P. elgii TKU051 was found to produce at least four proteases with molecular weights of 100 kDa, 57 kDa, 43 kDa, and 34 kDa (determined by the gelatin zymography method). A P. elgii TkU051 crude enzyme cocktail was optimally active at pH 6–7 and 60 °C. The 2,2-diphenyl-1-picrylhydrazyl radical scavenging activity and α-glucosidase inhibitory activity of the hydrolysates obtained from the hydrolysis of shrimp shell powder, shrimp head powder, shrimp meat powder, fish head powder and soya bean powder catalyzed by the P. elgii TkU051 crude enzyme cocktail were also evaluated. P. elgii TKU051 exhibited a high deproteinization capacity (over 94%) on different kinds of shrimp waste (shrimp heads and shells; fresh and cooked shrimp waste; shrimp waste dried by oven and lyophilizer), and the Fourier-transform infrared spectroscopy profile of the chitin obtained from the deproteinization process displayed the characteristic of chitin. Finally, the obtained chitin exhibited an effect comparable to commercial chitin in terms of adsorption against Congo Red (90.48% and 90.91%, respectively). Thus, P. elgii TKU051 showed potential in the reclamation of chitinous fishery by-products for proteases production and chitin extraction.