Abstract: This study aimed to construct a novel aqueous two-phase system for the efficient separation of albumin components from sheep blood, followed by structural identification and functional characterization of the isolated sheep serum albumin. First, the optimal phase-separation system was screened from seven salts, and then a single-factor experiment combined with a Box-Behnken experimental design was used to determine the optimal process parameters for separating sheep blood albumin using an aqueous two-phase system. The isolated albumin was then characterized by using electrophoresis and spectroscopic techniques. Finally, the emulsification, foaming and gelling properties of albumin from different species were compared to evaluate its application potential in food. The results showed that the ethanol–sodium dihydrogen phosphate combination was the optimal aqueous two-phase system for albumin separation. Under the conditions of 3.8% (w/w) plasma loading, 27.6% (w/w) ethanol, 18.4% (w/w) sodium dihydrogen phosphate, and 2.6% (w/w) sodium chloride, efficient separation of sheep serum albumin was achieved within 30 minutes, yielding a recovery rate of 92.8% and a purity of 93.3%. The results of sodium dodecyl sulfate-polyacrylamide gel electrophoresis (SDS-PAGE), Fourier transform infrared spectroscopy (FTIR), circular dichroism (CD) and fluorescence spectroscopy showed that the molecular weight of the separated sheep blood albumin was about 66 kDa, and the secondary and tertiary structures were consistent with standard albumin. Furthermore, the emulsifying stability, foam stability, and gel strength of the isolated sheep serum albumin were 3.3-, 2.4-, and 3.0-fold higher than those of egg albumin, respectively, demonstrating superior functional properties. This study provides a theoretical basis for the low-cost and high-efficiency recovery of sheep plasma albumin, while also offering critical insights for its advanced processing and potential applications in functional food products.