Hemp seed protein (HSP), a by-product of hemp oil processing, was converted into a functional protein ingredient enriched with γ-aminobutyric acid (GABA) and peptides through a two-step microbial fermentation process. To enhance peptide and free amino acid production from HSP, it was hydrolyzed using alkaline protease produced by Bacillus subtilis HA. The HSP was hydrolyzed at a degree of 40% at 55 °C for 24 h, yielding a pH of 6.55, an acidity of 1.22%, and 205.45 mg% tyrosine equivalents. This process resulted in the production of low molecular-weight peptides. (<5000 Da) The total amino acid content and branched-chain amino acids (leucine, isoleucine, and valine) were 6.78 mg/g and 1.47 mg/g. Subsequently, the production of γ-aminobutyric acid (GABA) in the HSP hydrolysate was optimized through co-fermentation with lactic acid bacteria in the presence of 5% MSG at 30 °C for 5 days. The serial co-fermented HSP hydrolysate exhibited a GABA content of 33.98 mg/g and a viable bacterial count of 9.51 log CFU/mL for Lb. plantarum KS2020. This serial co-fermentation process, combining proteolysis and lactic acid fermentation, not only increased the peptide content but also promoted GABA accumulation, positioning HSP hydrolysate as a promising candidate for functional foods with potential health benefits.