Epimedii Folium is a traditional medicinal plant commonly used in Northeast Asia. The nonuniform drying methods during processing is an important factor leading to the uneven quality of commercial Epimedii Folium, which further results in low resource utilization. Our previous studies have proved that the content of icariin and baohuoside I, the quality control markers in Epimedii Folium, was significantly increased during thermal-processing of Epimedium koreanum Nakai, but the quality and component transformation mechanisms remained unclear. Therefore, in this study, chemical composition analysis, combined with pharmacodynamics were carried out for the first time to comprehensively evaluate the influence of three processing methods, including traditional shade-drying, oven-drying and classical suet stir-frying, on Epimedii Folium, and reveal the component transformation mechanism. A total of 50 components were identified using UHPLC-ESI-Q/TOF-MS, of which 3′′′-carbonyl-2′′-β-L-quinovosyl baohuoside I was identified to be a new prenylflavonoid diglycoside. To clarify the types of components that can convert into icariin and baohuoside I, their content in different elution fractions of E. koreanum aqueous extract before and after baking were compared by HPLC-DAD for the first time. The source of increased icariin and baohuoside I was determined to be prenylflavonoid triglycosides and diglycosides, respectively. In order to explore the component transformation mechanism, the content of 15 main components, including five major prenylflavonoid triglycosides and three diglycosides in shade-drying, oven-drying and suet stir-frying E. koreanum were analyzed using UPLC-PDA. The result was demonstrated for the first time that icariin and baohuoside I were possibly mainly derived from the heat-labile prenylflavonoid glycosides, such as 3′′′-carbonyl-2′′-β-L-quinovosyl icariin and 3′′′-carbonyl-2′′-β-L-quinovosyl baohuoside I, rather than the previously reported common prenylflavonoid glycosides with stable structures. The pharmacodynamic comparison results indicated for the first time that both shade-drying and oven-drying E. koreanum were less potent than suet stir-frying E. koreanum in ameliorating renal function. However, based on the comprehensive evaluation of the content and efficacy in this study, oven-drying was still considered to have advantages over the traditional drying methods such as shade-drying, in elevating drying efficiency, content of bioactive components and the resource utilization rate of Epimedii Folium and worth popularizing.