The purpose of this study was to use an electrolytic oxidizing (EO) water system in a prawn hatchery. The results of the EO water generation efficiency showed that available chlorine in the EO water increased as the salinity and electric power increased, but was reduced as the water flow rate increased. A bactericidal activity assay showed that the growth of six aquatic pathogens was well inhibited by incubation with EO water containing 1 mg L−1 of available chlorine. The removal of NH3-N and NO2-N by electrolysis at 15‰ and 5 W had significant effects, and the removal rate of NO2-N was much faster than that of NH3-N. Prawn zoea (Z) reared in EO water with different levels of available chlorine at 0 (control), 0.2, 0.3 and 0.4 mg L−1 had mortalities of 0%, 12%, 27% and 42%, respectively, after 72 h. However, Z were able to well survive in activated carbon-treated EO water for 1 week. For the on-farm use of the EO water system in a prawn hatchery, larvae in the EO water group had faster development and higher survival than those in the activated carbon group. From these results, we believe that the EO water group had excellent water quality and lower bacterial counts resulting in increased larval development and survival.