Chitosanase has attracted great attention due to its potential applications in medicine, agriculture, and nutraceuticals. In this study, TKU032, a bacterial strain isolated from Taiwanese soil, exhibited the highest chitosanase activity (0.53 U/mL) on medium containing shrimp heads as the sole carbon and nitrogen (C/N) source. Using sodium dodecyl sulfate-polyacrylamide gel electrophoresis (SDS-PAGE) analysis, a chitosanase isolated from TKU032 cultured on shrimp head medium was determined at approximately 59 kDa. The characterized chitosanase showed interesting properties with optimal temperature and thermal stability up to 70 °C. Three chitosan oligosaccharide (COS) fractions were isolated from hydrolyzed colloidal chitosan that was catalyzed by TKU032 chitosanase. Of these, fraction I showed the highest α-glucosidase inhibitor (aGI) activity (65.86% at 20 mg/mL); its inhibitory mechanism followed the mixed noncompetitive inhibition model. Fractions II and III exhibited strong 2,2-diphenyl1-picrylhydrazyl (DPPH) radical scavenging activity (79.00% at 12 mg/mL and 73.29% at 16 mg/mL, respectively). In summary, the COS fractions obtained by hydrolyzing colloidal chitosan with TKU032 chitosanase may have potential use in medical or nutraceutical fields due to their aGI and antioxidant activities.