A new type of hydroxyalkyl starch, γ-hydroxypropyl starch (γ-HPS), was prepared by etherification of alkali-activated starch with 3-chloropropanol. The reaction efficiency, morphological change, thermodynamic and apparent viscosity properties, and other physicochemical characteristics were described. The molar substitution (MS) of modified whole starch was determined to be 0.008, 0.017, 0.053, 0.106, and 0.178, with a ratio of 5%, 15%, 25%, 35%, and 45% 3-chloropropanol to starch (v/w), respectively. Compared to native starch, the granular size and shape and the X-ray diffraction pattern of γ-HPS are not very different. For low-substituted γ-HPS, the implications may be less evident. Thermal stability measurements by means of thermogravimetric analyses and differential scanning calorimetry (TGA-DSC) proved that thermal stability was reduced and water retaining capacity was increased after hydroxypropylation. Furthermore, the findings also showed that the solubility, light transmittance, and retrogradation of γ-HPS pastes could be improved by etherification. The greater the MS of the γ-HPS, the more its freeze–thaw stability and acid resistivity increased. In this study, we provide relevant information for the application of γ-HPS in food and non-food industries.