C-Phycocyanin (CPC) was extracted from Arthrospira sp. and isolated from an estuarine ecosystem in southern India. A 45-day feeding trial was conducted to unravel the effect of dietary CPC in Penaeus vannamei. Seven iso-nitrogenous and iso-energetic experimental diets were prepared with different levels of CPC at 0 (CPC0), 50 (CPC50), 100 (CPC100), 200 (CPC200), 400 (CPC400), 800 (CPC800) and 1600 (CPC1600) mg per kg diet. The results revealed that the survival percentages in CPC200, CPC400, CPC800 and CPC1600 were significantly (p < 0.05) higher than in other treatments. Moreover, P. vannamei fed with CPC800 and CPC1600 showed a significantly higher percentage (p < 0.05) of weight gain compared to other treatments. Similarly, compared to other treatments, average body weight, average daily gain, specific growth rate and feed conversion ratio improved significantly (p < 0.05) in CPC800 and CPC1600. Differential gene expression of selected immune genes (ProPO, SOD and HSP70) indicated enhanced immunity in P. vannamei fed with CPC400 and higher CPC doses. The enhanced health of P. vannamei fed with diets containing CPC was further corroborated by the gut Vibrio counts, haematology, gut microbiome and histopathological analyses, and the results showed the addition of CPC at 800 mg per kg of feed enhanced the health of shrimps. The results also give the baseline information about the utilization of CPC in P. vannamei grow-out feed at an inclusion level of 800 mg per kg of feed to get better growth, survival and health. The results would help in developing functional feeds for shrimps to act against bacterial diseases.