Nonfat set yogurts are very popular in Japan because of their health properties, but have the disadvantage of being hard and having large curd particles compared to fat-containing yogurts. We investigated the effect of lactose hydrolysis on nonfat set yogurt to determine whether this technique can improve the sensory evaluation and the texture of a nonfat set yogurt. We prepared nonfat yogurt mixes with 0, 50, 75, and 100% lactose hydrolysis and fermented them. The sensory properties, physical properties, fermentation characteristics, extracellular polysaccharide (EPS) concentration and lactic acid bacteria count were then assessed. The results demonstrated that the lactose hydrolysis rate had no effect on the fermentation time. The 75% lactose hydrolysis increased the EPS concentration and inhibited post-acidification. The 100% lactose hydrolysis increased the number of Lactobacillus delbrueckii subsp. bulgaricus (L. bulgaricus) and further increased the EPS concentration, and despite the increase in the number of L. bulgaricus, the 100% lactose hydrolysis suppressed post-acidification. The results of a sensory evaluation showed that the 100% lactose hydrolysis increased the yogurt's viscosity and overall acceptability and suppressed its acidity. The physical-properties evaluation revealed that when the lactose hydrolysis rate was ≥75%, the curd hardness decreased, and the curd particles became smaller. We inferred that these sensory and physical changes originated from an increase in the EPS concentration, and we thus speculate that a 100% lactose hydrolysis rate before fermentation would be a useful means of solving the hardness and large curd particles of nonfat set yogurt.