In this study, fish oil was hydrolyzed by lipase in a fish oil-in-water emulsion system in an effort to improve the functional properties of fish oil. Lipase activity was found to depend on the quality of the water/fish oil interface area. We selected several suitable emulsifiers, and their emulsifying activities were evaluated under a variety of conditions, including concentration, water-oil ratios, pH values, and temperature. Among the selected emulsifiers, the emulsifying activity of gelatin was higher than those of carboxymethyl chitin (CM-chitin), bovine serum albumin, and Tween-20, all of which are commercial emulsifiers. Moreover, the emulsifying activity of the gelatin solution was the highest at 0.5%, and was reduced with increasing concentrations of above 1 %. The optimal water-oil ratio, pH, and temperature conditions were 40% (w/v), pH 8.0 and $40^{circ}C$, respectively. Under these conditions, the emulsifying activity of gelatin solution was 86%. The emulsion structure of the gelatin solution was characterized by high density and small particle size. The degree of sardine oil hydrolysis in the emulsion system was 50% higher than that of the non-emulsion system. The lipid species of the lipase-prepared sardine oil hydrolysates were identified as triacylglycerol, 1,3- and 1,2-diacylglycerol, monoacylglycerol, and fatty acid.