Icariside I, a bioactive flavonoid derivative derived from Herba epimedii, demonstrates better pharmacological properties compared to its precursor icariin. Enzymatic conversion of icariin to icariside I using α-L-rhamnosidase represents an efficient biotechnological approach. In this study, we characterized a GH78 family α-L-rhamnosidase from Dictyoglomus thermophilum (DthRha) with promising biocatalytic properties. The recombinant DthRha displayed optimal activity at 55 °C and pH 6.0, with remarkable thermostability (retaining > 80% activity after 1 h at 45–65 °C) and pH stability (pH 5.0–7.0). The kinetic parameters K_m, k_cat and k_cat/K_m values for pNPR of 0.44 mM, 7.99 s⁻¹ and 18.16 s⁻¹ mM⁻¹, respectively. Notably, DthRha exhibited good organic solvent tolerance, retaining > 50% activity after 4 h in 10% DMSO. Applied in a DMSO cosolvent system, DthRha achieved 92.3% conversion of icariin to icariside I within 4 h under optimized conditions. Interestingly, elevating the substrate concentration to 10 mM resulted in a consistently high icariin conversion of 95.8%. The enzymatic hydrolysis method can be applied to the industrial production of Icariside I. Furthermore, DthRha not only cleaves the α-1,2 glycosidic bond between glucoside and rhamnoside in compounds like naringin, but also exhibits tolerance to organic solvents, making it suitable for the hydrolysis of other poorly soluble flavonoids.