Chitin and protein-containing marine by-products (CPCMBPs), including crab shells, squid pens, and shrimp shells, were investigated as the sole carbon/nitrogen (C/N) source for prodigiosin (PG) production by Serratia marcescens TNU01 in a 250 mL Erlenmeyer flask and a 10 L bioreactor system. Among the used C/N source of CPCMBPs, squid pens powder (SPP) showed the most optimum PG productivity. Different ratios of chitin/protein combination were also used as the C/N sources for PG production. With a similar chitin/protein ratio (4/6) of squid pens, a significant PG productivity was achieved when the chitin/protein ratios were controlled in the range of 3/7–4/6. Maximum PG yield (3450 mg/L) by S. marcescens TNU01 was achieved in the bioreactor system containing 3 L medium of 1.75% SPP, 0.03% K2HPO4, and 0.05% MgSO4 at 25 °C for 12 h in dark. The results of in vitro bioassays reveal that the purified PG possesses acetylcholinesterase inhibitory activity and antioxidant as well as anticancer activities. This study suggests that squid pens may have the potential to be used for cost effective production of bioactive PG at a large-scale.