Lithium-ion batteries are used as energy storage devices in a variety of applications ranging from small portable electronics to high-energy/high-power electric vehicles. These batteries degrade and lose their capacity, defined as the amount of charge the battery holds, as a result of charge–discharge operations and various degradation mechanisms. Degradation of lithium-ion batteries is affected by various operational and environmental conditions, including temperature, discharge and charge current, and depth of discharge. Another factor, which has not been given due attention, is the open rest period after full charge during the cycling operation of the batteries. This study investigates the effects of open rest period after full charge on the performance degradation behavior of graphite/LiCoO2 pouch batteries under four different ambient temperatures. Battery degradation is quantified in terms of the capacity fade and shifts in the peaks of the differential voltage curves, which also provide inferences about the individual electrode degradation. The interplay between rest time, battery state of charge, and number of cycles is investigated to explain the capacity fade trends. A capacity fade trend model is then developed and applied to the experimental data, and the applicability of rest time as an accelerating stress factor for Li-ion battery testing is presented. The degradation mechanisms are investigated using differential voltage analysis, X-ray diffraction, scanning electron microscopy, and energy dispersive X-ray spectroscopy techniques.