We report a two-step method for preparing hydrophobic graphene. This method transforms graphite oxide (GO) into thermally reduced graphene oxide (TRGO) and then into phenyl-functionalized thermally reduced graphene oxide (PTRGO) through high-temperature thermal reduction and a heat-induced solid-phase chemical reaction. GO was successfully stripped, and TRGO was prepared by high-temperature thermal reduction. The phenyl radicals produced by the thermal decomposition of benzoyl peroxide(BPO) preferentially induced the ring-opening of the epoxy group on the TRGO, and the phenyl groups were attached. The prepared PTRGO displayed excellent hydrophobic properties, with a water contact angle of 132.0°, and was stably dispersed in the base oil without requiring any surfactants or modifiers. Four-ball testing showed that when the additive amount of PTRGO was 75 mg/L, the coefficient of friction (COF) and wear scratch diameter (WSD) of Abu Dhabi (AD) base oil (150 N) decreased by 24.2% and 15.7%, respectively.