Mantis shrimp (Oratosquilla nepa) exoskeleton, a leftover generated after processing, was used as a starting material for chitosan (CS) production. CS was extracted with different deacetylation times (2, 3 and 4 h), termed CS−2, CS−3 and CS−4, respectively, and their characteristics and antimicrobial and film properties with agarose (AG) were investigated. Prolonged deacetylation time increased the degree of deacetylation (DDA: 73.56 ± 0.09−75.56 ± 0.09%), while extraction yield (15.79 ± 0.19−14.13 ± 0.09%), intrinsic viscosity (η: 3.58 ± 0.09−2.97 ± 0.16 dL/g) and average molecular weight (Mν: 1.4 ± 0.05−1.12 ± 0.08 (×106 Da)) decreased (p < 0.05). FTIR spectra of extracted CS were similar to that of commercial CS. Among all the CS samples prepared, CS−3 had the best yield, DDA, Mν and antimicrobial activity. Therefore, it was chosen for the development of composite films with AG at different ratios (CS−3/AG; 100/0, 75/25, 50/50, 25/75 and 0/100). As the proportion of AG increased, the tensile strength (29.96 ± 1.80−89.70 ± 5.08 MPa) of the composite films increased, while thickness (0.056 ± 0.012−0.024 ± 0.001 mm), elongation at break (36.52 ± 1.12−25.32 ± 1.23%) and water vapor permeability (3.56 ± 0.10−1.55 ± 0.02 (×10−7 g m m−2 s−1 Pa−1)) decreased (p < 0.05). Moreover, lightness of the films increased and yellowness decreased. CS−3/AG (50/50) composite film exhibited high mechanical and barrier properties and excellent compatibility according to FTIR and SEM analyses. According to these finding, mantis shrimp exoskeleton could be used to produce CS. The developed bio-composite film based on an appropriate ratio (50/50) of CS−3 and AG has potential for being used as food packaging material.