diff --git a/oslo_utils/tests/test_timeutils.py b/oslo_utils/tests/test_timeutils.py
index e886c20c..09cd031f 100644
--- a/oslo_utils/tests/test_timeutils.py
+++ b/oslo_utils/tests/test_timeutils.py
@@ -62,6 +62,26 @@ class TimeUtilsTest(test_base.BaseTestCase):
         )
         self.assertEqual(skynet_self_aware_time_ms_utc, expect)
 
+    def test_parse_isotime_naive_treated_as_utc(self):
+        """Verify naive timestamps are treated as UTC (documented behavior)."""
+        # Naive string without timezone should be treated as UTC
+        result = timeutils.parse_isotime('2012-02-14T20:53:07')
+        self.assertIsNotNone(result.tzinfo)
+        assert result.tzinfo is not None  # for type checker
+        self.assertEqual(result.tzinfo.tzname(None), 'UTC')
+
+        # Explicit Z should also be UTC
+        result_z = timeutils.parse_isotime('2012-02-14T20:53:07Z')
+        assert result_z.tzinfo is not None  # for type checker
+        self.assertEqual(result_z.tzinfo.tzname(None), 'UTC')
+
+        # Explicit offset should be respected
+        result_offset = timeutils.parse_isotime('2012-02-14T20:53:07+05:30')
+        self.assertIsNotNone(result_offset.tzinfo)
+        assert result_offset.tzinfo is not None  # for type checker
+        offset = result_offset.tzinfo.utcoffset(None)
+        self.assertEqual(offset, datetime.timedelta(hours=5, minutes=30))
+
     def test_parse_strtime(self):
         perfect_time_format = self.skynet_self_aware_time_perfect_str
         expect = timeutils.parse_strtime(perfect_time_format)
diff --git a/oslo_utils/timeutils.py b/oslo_utils/timeutils.py
index c677fde9..6d5f7af5 100644
--- a/oslo_utils/timeutils.py
+++ b/oslo_utils/timeutils.py
@@ -41,7 +41,36 @@ now = time.monotonic
 
 
 def parse_isotime(timestr: str) -> datetime.datetime:
-    """Parse time from ISO 8601 format."""
+    """Parse time from ISO 8601 format.
+
+    :param timestr: ISO 8601 formatted datetime string
+    :returns: A timezone-aware datetime.datetime instance
+    :raises ValueError: When the string cannot be parsed as ISO 8601
+
+    .. note::
+       For historical reasons, datetime strings without explicit timezone
+       designators (Z, +HH:MM, -HH:MM) are treated as UTC timestamps rather
+       than naive/local time as specified by ISO 8601. This behavior is
+       preserved for backward compatibility.
+
+       For ISO 8601 compliant parsing that returns naive datetime objects
+       when no timezone is specified, consider using
+       ``datetime.datetime.fromisoformat()`` (Python 3.7+) or the ``iso8601``
+       library directly with ``default_timezone=None``.
+
+    Examples:
+
+    >>> # Strings without timezone designators are treated as UTC
+    >>> parse_isotime('2012-02-14T20:53:07')
+    datetime.datetime(2012, 2, 14, 20, 53, 7, tzinfo=<UTC>)
+
+    >>> # Explicit timezone designators are respected
+    >>> parse_isotime('2012-02-14T20:53:07Z')
+    datetime.datetime(2012, 2, 14, 20, 53, 7, tzinfo=<UTC>)
+
+    >>> parse_isotime('2012-02-14T20:53:07+05:30')
+    datetime.datetime(2012, 2, 14, 20, 53, 7, tzinfo=<+05:30>)
+    """
     try:
         return iso8601.parse_date(timestr)
     except iso8601.ParseError as e:
diff --git a/releasenotes/notes/document-parse-isotime-utc-behavior-1638124-8f3a1b5e9c4d2f1a.yaml b/releasenotes/notes/document-parse-isotime-utc-behavior-1638124-8f3a1b5e9c4d2f1a.yaml
new file mode 100644
index 00000000..53900fd0
--- /dev/null
+++ b/releasenotes/notes/document-parse-isotime-utc-behavior-1638124-8f3a1b5e9c4d2f1a.yaml
@@ -0,0 +1,11 @@
+---
+fixes:
+  - |
+    `Bug #1638124 <https://bugs.launchpad.net/oslo.utils/+bug/1638124>`_:
+    The ``parse_isotime()`` function's docstring now clearly documents that
+    datetime strings without explicit timezone designators (Z, +HH:MM, -HH:MM)
+    are treated as UTC timestamps rather than naive/local time as specified
+    by ISO 8601. This behavior exists for historical reasons and backward
+    compatibility. The documentation now points users to alternatives
+    (``datetime.fromisoformat()`` or the ``iso8601`` library directly with
+    ``default_timezone=None``) for ISO 8601 compliant parsing.