Step 1: Bacillus thuringiensis} produces a crystalline protein toxin called Bt toxin.
Step 2: The toxin is produced in an inactive form called protoxin.
Step 3: It becomes active only in the alkaline pH of the insect gut.
Step 4: Since the bacteria’s own cytoplasm doesn't activate the toxin, it is not harmed.
\[
\Rightarrow \boxed{\text{Correct answer: (C) Toxin is inactive}}
\]