The demand for low- and non-fat products has recently increased due to the health problems, such as obesity, diabetes, and cardiovascular diseases, that have resulted from high-fat products. However, the reduction in fat can affect the quality of products adversely. The objective of this work was to explore the potential of whey protein isolate (WPI) in improving the quality of non-fat yogurt prepared using skim milk powder (SMP). Yogurt mixes (standardized at 14% total solids) were formulated using SMP as a milk base enriched with WPI. The SMP was replaced by WPI in the yogurt mixes at a rate of 3, 5, 7, and 9%. Full-fat and non-fat set-style yogurts were prepared from whole milk and skim milk, respectively, as controls. Yogurts were fermented at 43 °C to get a pH of 4.6 and stored at 4 °C for the next day. The texture, microstructure, rheological characteristics, and sensory properties of the yogurt samples were studied. The incorporation of WPI increased the water holding capacity to 50% as compared to the non-fat control. This improved the rheological properties while the yogurt viscosity increased in direct proportion with increasing the WPI. The firmness of yogurt was inversely proportional to the increase in WPI, which resulted in 180 g firmness when 9% WPI was added to the non-fat yogurt formulations. Yogurts’ microstructure improved by the addition of WPI. The non-fat yogurt incorporated with 3 and 7% WPI had comparable sensory and textural characteristics to the full-fat yogurt. WPI can be used as a fat replacer to develop low-fat yogurt with desired features. WPI may be a natural and economical ingredient for producing low- and non-fat fermented dairy food products.