Milk chocolates were prepared by replacing skim milk powder in the formulation with yoghurt powder at 50% and 100% levels. The effect of incorporating yoghurt powder on quality of chocolates was studied. No significant changes were observed in fatty acid profile and hardness of the chocolates. Sour taste of chocolate with yoghurt powder due to its acidity was neutralized by adding calculated amount of sodium bicarbonate. Sensory analysis showed that probiotic chocolates were highly acceptable and similar to control chocolate. Microbiological studies of chocolates showed the presence of Lactobacillus species to the extent of 3.37 log·cfu/g, which were not present in the control sample prepared only with skim milk powder. Rheological studies showed that milk chocolate prepared using yoghurt powder at 50% showed no significant changes in yield value compared to that of control, but at 100% addition a considerable decrease in yield value was observed. Microstructural properties of chocolate with 50% addition of yoghurt powder showed smaller particles adhering to the cocoa and sugar crystals but at 100% addition of yoghurt powder, the cocoa particles were completely covered by smaller yoghurt powder matrix.