Aims To examine tannic acid (TA) utilization capacity by nitrogen-fixing bacteria, Azotobacter sp. SSB81, and identify the intermediate products during biotransformation. Another aim of this work is to investigate the effects of TA on major biopolymers like extracellular polysaccharide (EPS) and polyhydroxybutyrate (PHB) synthesis. Methods and Results Tannic acid utilization and tolerance capacity of the strain was determined according to CLSI method. Intermediate products were identified using high-performance liquid chromatography, LC-MS/MS and 1H NMR analysis. Intermediates were quantified by multiple reactions monitoring using LC-MS/MS. The strain was able to tolerate a high level of TA and utilized through enzymatic system. Growth of Azotobacter in TA-supplemented medium was characterized by an extended lag phase and decreased growth rate. Presence of TA catalytic enzymes as tannase, polyphenol oxidase (PPO) and phenol decarboxylase was confirmed in cell lysate using their specific substrates. PPO activity was more prominent in TA-supplemented mineral medium after 48 h of growth when gallic to ellagic acid (EA) reversible reaction was remarkable. Phase contrast and scanning electron microscopic analysis revealed elongated and irregular size of Azotobacter cells in response to TA. 1H NMR analysis indicated that TA was transformed into gallic acid (GA), EA and pyrogallol. Biopolymer (EPS and PHB) production was decreased several folds in the presence of TA compared with cells grown in only glucose medium. Conclusions This is the first evidence on the biotransformation of TA by Azotobacter and also elevated level of EA production from gallotannins. Azotobacter has developed the mechanism to utilize TA for their carbon and energy source. Significance and Impact of the Study The widespread occurrence and exploitation of Azotobacter sp. strain SSB81 in agricultural and forest soil have an additional advantage to utilize the soil-accumulated TA and detoxifies the allelopathic effect of constant accumulated TA in soil.