Extending the temperature measurement range and sustaining the system performance are important requirements in Rayleigh lidars. While replacing hardware and increasing the power aperture product are ways of achieving these objectives, the data analysis approach is another means for achieving the same. A method to retrieve atmospheric temperatures using the penalized maximum likelihood method after denoising the backscattered signal using the dictionary learning technique is presented and compared with the conventional method. The proposed combination has the advantage of improving the measurement range and reducing the standard error (SE) in temperatures. The penalized maximum likelihood function is solved using the method of successive approximations, and the SE in temperature is calculated using Monte Carlo simulations. Observations from the Rayleigh lidar at the National Atmospheric Research Laboratory, India, are used for testing the approach. When compared with the conventional method, the SE in temperatures improved by 5K at 84 km, and the average height improvement was about 6 km.