The presence of high salinity levels in textile wastewater poses a significant obstacle to the process of decolorizing azo dyes. The present study involved the construction of a yeast consortium HYC, which is halotolerant and was recently isolated from wood-feeding termites. The consortium HYC was mainly comprised of Sterigmatomyces halophilus SSA-1575 and Meyerozyma guilliermondii SSA-1547. The developed consortium demonstrated a decolourization efficiency of 96.1% when exposed to a concentration of 50 mg/l of Reactive Black 5 (RB5). The HYC consortium significantly decolorized RB5 up to concentrations of 400 mg/l and in the presence of NaCl up to 50 g/l. The effects of physicochemical factors and the degradation pathway were systematically investigated. The optimal pH, salinity, temperature, and initial dye concentration were 7.0, 3%, 35 °C and 50 mg/l, respectively. The co-carbon source was found to be essential, and the addition of glucose resulted in a 93% decolorization of 50 mg/l RB5. The enzymatic activity of various oxido-reductases was assessed, revealing that NADH-DCIP reductase and azo reductase exhibited greater activity in comparison to other enzymes. UV-Visible (UV–vis) spectrophotometry, Fourier-transform infrared spectroscopy (FTIR), high-performance liquid chromatography (HPLC), and gas chromatography–mass spectrometry (GC-MS) were utilized to identify the metabolites generated during the degradation of RB5. Subsequently, a metabolic pathway was proposed. The confirmation of degradation was established through alterations in the functional groups and modifications in molecular weight. The findings indicate that this halotolerant yeast consortium exhibits promising potential of degrading dye compounds. The results of this study offer significant theoretical basis and crucial perspectives for the implementation of halotolerant yeast consortia in the bioremediation of textile and hypersaline wastewater. This approach is particularly noteworthy as it does not produce aromatic amines.