Abstract: Artemisia argyi (A. argyi), a plant with a longstanding history as a raw material for traditional medicine and functional diets in Asia, has been used traditionally to bathe and soak feet for its disinfectant and itch-relieving properties. Despite its widespread use, scientific evidence validating the antifungal efficacy of A. argyi water extract (AAWE) against dermatophytes, particularly Trichophyton rubrum, Trichophyton mentagrophytes, and Microsporum gypseum, remains limited. This study aimed to substantiate the scientific basis of the folkloric use of A. argyi by evaluating the antifungal effects and the underlying molecular mechanisms of its active subfraction against dermatophytes. The results indicated that AAWE exhibited excellent antifungal effects against the three aforementioned dermatophyte species. The subfraction AAWE6, isolated using D101 macroporous resin, emerged as the most potent subfraction. The minimum inhibitory concentrations (MICs) of AAWE6 against T. rubrum, M. gypseum, and T. mentagrophytes were 312.5, 312.5, and 625 μg·mL⁻¹, respectively. Transmission electron microscopy (TEM) results and assays of enzymes linked to cell wall integrity and cell membrane function indicated that AAWE6 could penetrate the external protective barrier of T. rubrum, creating breaches (“small holes”), and disrupt the internal mitochondrial structure (“granary”). Furthermore, transcriptome data, quantitative real-time PCR (RT-qPCR), and biochemical assays corroborated the severe disruption of mitochondrial function, evidenced by inhibited tricarboxylic acid (TCA) cycle and energy metabolism. Additionally, chemical characterization and molecular docking analyses identified flavonoids, primarily eupatilin (131.16 ± 4.52 mg·g⁻¹) and jaceosidin (4.17 ± 0.18 mg·g⁻¹), as the active components of AAWE6. In conclusion, the subfraction AAWE6 from A. argyi exerts antifungal effects against dermatophytes by disrupting mitochondrial morphology and function. This research validates the traditional use of A. argyi and provides scientific support for its anti-dermatophytic applications, as recognized in the Chinese patent (No. ZL202111161301.9).