The growing global Muslim population has resulted in an increase in Muslim travelers worldwide, intensifying the demand for Muslim-friendly products and services in the hospitality industry. The Malaysian government introduced the Muslim-Friendly Tourism and Hospitality Assurance and Recognition (MFAR) program to tap into this growing market. However, the limited participation of hotels in this initiative raises numerous questions. Additionally, ambiguity surrounding the Islamic hotel concept and its proper practices persists, leading to misinterpretations among hotel operators. Addressing these questions could enhance practitioners’ receptiveness to such initiatives. This study aims to examine the contribution of Islamic hotel practices to the sustainability of Malaysia’s hotel sector. A case study approach was employed, focusing specifically on the accommodation sector, particularly hotels. Data collection involved in-depth interviews with two key stakeholder groups, namely government authorities and Islamic hotel operators. Thematic analysis, conducted with the assistance of ATLAS.ti 8 software, revealed that the Islamic hospitality concept, derived from the Quran and Hadith, encompasses two key aspects: spiritual and physical. Key findings highlight the distinct attributes of Islamic values, including fostering an ethical and moral environment, prioritizing inclusivity for Muslim travelers, and integrating features such as prayer facilities, halal food, and modest dress codes into hotel operations. Furthermore, the findings indicate that the government supports hotel operators in implementing Islamic practices through training and capacity building, acknowledgment through awards and recognition, providing business opportunities, and enforcing policies at various governmental levels. This study contributes to a deeper understanding of how Islamic practices shape hotel operations and their role in enhancing sustainability and competitiveness in the hospitality industry. By elucidating the attributes of Islamic values, this research provides actionable insights for stakeholders aiming to strengthen the implementation of Islamic principles in Malaysia’s hospitality landscape.