diff --git a/.github/workflows/build-release.yml b/.github/workflows/build-release.yml
index 334f64f2..85b729c1 100644
--- a/.github/workflows/build-release.yml
+++ b/.github/workflows/build-release.yml
@@ -100,6 +100,10 @@ jobs:
           mv cpe.json         images/sbom/
           mv legal-info/*.csv images/sbom/
 
+          # Remove rootfs.squashfs from release (can be extracted from rootfs.itb)
+          # Saves ~131MB per architecture. See issue #858
+          rm -f images/rootfs.squashfs
+
           mv images ${{ steps.vars.outputs.dir }}
           ln -s ${{ steps.vars.outputs.dir }} images
           tar cfz ${{ steps.vars.outputs.tgz }} ${{ steps.vars.outputs.dir }}
diff --git a/board/common/qemu/qemu.sh b/board/common/qemu/qemu.sh
index 0de195da..d72d147b 100755
--- a/board/common/qemu/qemu.sh
+++ b/board/common/qemu/qemu.sh
@@ -313,8 +313,35 @@ gdb_args()
     echo -n "-gdb chardev:gdbqemu"
 }
 
+extract_squashfs()
+{
+    # Extract rootfs.squashfs from rootfs.itb if missing
+    # The .itb file is rootfs.itbh (4096 bytes) + rootfs.squashfs
+    input="${1:-rootfs.itb}"
+    output="${2:-rootfs.squashfs}"
+
+    [ -f "$input" ] || die "Cannot extract $output: $input not found"
+
+    echo "Extracting $output from $input (skipping 4096-byte FIT header)..."
+    dd if="$input" of="$output" bs=4096 skip=1 2>/dev/null \
+        || die "Failed to extract $output from $input"
+
+    echo "Successfully created $output"
+}
+
 run_qemu()
 {
+    # Auto-extract rootfs.squashfs from rootfs.itb if needed for initrd mode
+    if [ "$CONFIG_QEMU_ROOTFS_INITRD" = "y" ]; then
+	if [ "$CONFIG_QEMU_ROOTFS" = "rootfs.squashfs" ] && [ ! -f "rootfs.squashfs" ]; then
+	    if [ -f "rootfs.itb" ]; then
+		extract_squashfs "rootfs.itb" "rootfs.squashfs"
+	    else
+		die "Missing rootfs.squashfs and cannot find rootfs.itb to extract it from"
+	    fi
+	fi
+    fi
+
     if [ "$CONFIG_QEMU_ROOTFS_VSCSI" = "y" ]; then
 	if ! qemu-img check "qemu.qcow2"; then
 	    rm -f "qemu.qcow2"
diff --git a/utils/extract-squashfs.sh b/utils/extract-squashfs.sh
new file mode 100755
index 00000000..3dc55492
--- /dev/null
+++ b/utils/extract-squashfs.sh
@@ -0,0 +1,103 @@
+#!/bin/sh
+#
+# Extract rootfs.squashfs from a release tarball's rootfs.itb file
+#
+# Usage: extract-squashfs.sh <tarball-or-itb-file> [output-file]
+#
+
+set -e
+
+usage() {
+    cat <<EOF
+Usage: $(basename "$0") <tarball-or-itb-file> [output-file]
+
+Extract rootfs.squashfs from a release tarball or .itb file.
+
+Arguments:
+  <tarball-or-itb-file>  Release tarball (*.tar.gz) or rootfs.itb file
+  [output-file]          Output squashfs file (default: rootfs.squashfs)
+
+Examples:
+  # From release tarball
+  $(basename "$0") infix-x86_64-25.09.0.tar.gz
+
+  # From .itb file directly
+  $(basename "$0") output/images/rootfs.itb
+
+  # Custom output location
+  $(basename "$0") infix-x86_64-25.09.0.tar.gz /tmp/my-rootfs.squashfs
+
+The script skips the 4096-byte FIT header to extract the SquashFS image.
+EOF
+}
+
+die() {
+    echo "ERROR: $*" >&2
+    exit 1
+}
+
+# Parse arguments
+case "$1" in
+    -h|--help)
+        usage
+        exit 0
+        ;;
+    "")
+        usage
+        exit 1
+        ;;
+esac
+
+input="$1"
+output="${2:-rootfs.squashfs}"
+
+[ -f "$input" ] || die "File not found: $input"
+
+# Detect if input is a tarball or .itb file
+case "$input" in
+    *.tar.gz)
+        echo "Extracting rootfs.itb from tarball..."
+        itb_file=$(tar -tzf "$input" | grep -m1 'rootfs\.itb$') \
+            || die "No rootfs.itb found in tarball"
+
+        echo "Found: $itb_file"
+        echo "Extracting SquashFS (skipping 4096-byte FIT header)..."
+
+        tar -xzOf "$input" "$itb_file" | dd bs=4096 skip=1 of="$output" 2>/dev/null \
+            || die "Failed to extract SquashFS"
+        ;;
+    *.itb)
+        echo "Extracting SquashFS from .itb file (skipping 4096-byte FIT header)..."
+        dd if="$input" of="$output" bs=4096 skip=1 2>/dev/null \
+            || die "Failed to extract SquashFS"
+        ;;
+    *)
+        die "Unsupported file type. Expected *.tar.gz or *.itb"
+        ;;
+esac
+
+# Verify output
+if [ -f "$output" ]; then
+    size=$(stat --format=%s "$output" 2>/dev/null || stat -f%z "$output")
+    file_type=$(file "$output")
+
+    # Try to format size nicely, fall back to bytes if numfmt not available
+    if command -v numfmt >/dev/null 2>&1; then
+        size_str=$(numfmt --to=iec-i --suffix=B "$size")
+    else
+        size_str="$size bytes"
+    fi
+
+    echo "Success! Created: $output ($size_str)"
+    echo "Type: $file_type"
+
+    # Quick sanity check for squashfs magic
+    if echo "$file_type" | grep -qi squashfs; then
+        echo "✓ Verified: Valid SquashFS filesystem"
+    else
+        echo "⚠ Warning: Output may not be a valid SquashFS image"
+        exit 1
+    fi
+else
+    die "Failed to create output file"
+fi