The incorporation of natural lignocellulosic fibers as reinforcements in polymer composites has witnessed significant growth due to their biodegradability, cost-effectiveness, and mechanical properties. This study aims to evaluate castor-oil-based polyurethane (COPU), incorporating different contents of coconut coir fibers, 5, 10, and 15 wt%. The investigation includes analysis of the physical, mechanical, and microstructural properties of these composites. Additionally, this study evaluates the influence of hydrothermal treatment on the fibers, conducted at 120 °C and 98 kPa for 30 min, on the biocomposites’ properties. Both coir fibers (CFs) and hydrothermal-treated coir fibers (HTCFs) were subjected to comprehensive characterization, including lignocellulosic composition analysis, scanning electron microscopy (SEM), Fourier transform infrared spectroscopy (FTIR), X-ray diffraction (XRD), and thermogravimetric analysis (TGA). The biocomposites were subjected to water absorption analysis, bending tests, XRD, SEM, FTIR, and TGA. The results indicate that the 30 min hydrothermal treatment reduces the extractive content, enhancing the interfacial adhesion between the fiber and the matrix, as evidenced by SEM. Notably, the composite containing 5 wt% CF exhibits a reduced water absorption, approaching the level observed in pure COPU. The inclusion of 15 wt% HTCF results in a remarkable improvement in the composite’s flexural strength (100%), elastic modulus (98%), and toughness (280%) compared to neat COPU. TGA highlights that incorporating CFs into the COPU matrix enhances the material’s thermal stability, allowing it to withstand temperatures of up to 500 °C. These findings underscore the potential of CFs as a ductile, lightweight, and cost-effective reinforcement in COPU matrix biocomposites, particularly for engineering applications.