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Soy protein isolate (SPI) and probiotics can serve as a functional ingredient and beneficial supplement, respectively, to food formulations, but few studies focus on the compatibility of these two ingredients. The objective of this study was to prepare soy protein isolate (SPI) from defatted soybean flour and identify an optimal hydrolysis protocol to create soy protein hydrolysates (SPH) with improved solubility and functional properties and achieve an optimum encapsulation technique for probiotics and to determine the in vitro viability of encapsulated probiotic cells with SPH in a gastrointestinal environment. The SPI was prepared using an alkaline extraction procedure for solubility within a beverage-specific pH range. The SPH was prepared from aqueous extracted soy protein isolate using pepsin and freeze-dried. The physicochemical properties of the SPH were investigated for solubility, degree of hydrolysis, surface hydrophobicity, and electrophoresis. Alginate was used as an encapsulation agent for L. acidophilus cultures to create freeze-dried microcapsules. The dried SPH and encapsulated probiotics with alginate in a dry powder mixture were tested for its gastrointestinal resistance and probiotic viability under in vitro simulated diges-tion. The experimental groups were a control of free probiotic cells, encapsulated probiotics only, free probiotics with SPH, and encapsulated probiotics with SPH. Hydrolysates from 2, 2.5, and 3 hr. of hydrolysis time achieved a suitable degree of hydrolysis (DH) between 2.5-5.0%. The 2.5- and 3-hour hydrolysates had higher solubilities of 86 and 88%, respectively, in comparison to SPI with 74% at pH 6.5 (p < .05). Surface hydrophobicity of the hydrolysates ranged from 15 to 20 So units, with surface hydrophobicity generally decreasing over time. Microcapsules measured 1 mm in size using environmental scanning electron microscopy (ESEM). Probiotic cultures with mean log CFU of 7.74 were obtained before gastrointestinal resistance. Approximately 1-log decrease was observed for all experimental groups after simulated digestion ranged with the lowest value of 6.19 log CFU for free probiotics. No significant difference was observed among experimental groups for probiotic viability (p = .445). The findings of this research provide an understanding of improved formulation for more sustainable soy protein hydrolysate and viability of encapsulated probiotics within gastrointestinal environments.