Wastewater sludge is a complex raw material that can support growth and protease production by Bacillus licheniformis. In this study, sludge was treated by different thermo-alkaline pre-treatment methods and subjected to Bacillus licheniformis fermentation in bench scale fermentors under controlled conditions. Thermo-alkaline treatment was found to be an effective pre-treatment process in order to enhance the proteolytic activity. Among the different pre-treated sludges tested, a mixture of raw and hydrolysed sludge caused an increase of 15% in the protease activity, as compared to the untreated sludge. The benefit of hydrolysis has been attributed to a better oxygen transfer due to decrease in media viscosity and to an increase in nutrient availability. Foam formation was a major concern during fermentation with hydrolysed sludge. The studies showed that addition of a chemical anti-foaming agent (polypropylene glycol) during fermentation to control foam could negatively influence the protease production by increasing the viscosity of sludge.