Owing to increased environmental awareness and the implementation of stringent governmental regulations, the demand for the valorization of natural fibers has increased in recent years. Sugarcane bagasse after juice extraction could be a potential source of natural fibers to be used in textile applications. In this paper, sugarcane bagasse is converted to textile fibers. Sugarcane fibers are extracted through alkali and H2O2 treatment with varying concentrations (6, 10, 14) g/L and (8, 12, 16) g/L, respectively. To soften the fibers for textile use, extracted fibers were post-treated with a constant ratio of silicone softener (50 g/L). Treatment of sugarcane fibers with varying concentrations of alkali–H2O2 significantly influenced the fiber surface morphology. Furthermore, an increase in the crystallinity of extracted fibers was observed, whereas a reduction in fiber linear density from 54.82 tex to 45.13 tex as well as moisture regain (6.1% to 5.1%) was observed as the ratio of alkali–H2O2 treatment was increased. A notable improvement in overall mechanical strength was achieved upon alkali–H2O2 treatment, but at a higher concentration (conc.) there was a loss of mechanical strength, and the torsional and flexural rigidity also increased significantly. Based on the results, sugarcane fibers treated with 10 g/L NaOH, 12 g/L H2O2 and 50 g/L silicone softener showed the most optimum results. These sustainable fibers have the potential to be used in textile applications due to their enhanced softness, optimum moisture regain, and better mechanical properties.