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This is an attempt at re-scoping this.
Dispensationalism as an interpretive framework closely related to a doctrinal predisposition and a literal hermeneutic.
Given that an interpretive framework, whether it be a set of rules or a theological predisposition, guides the interpretation of scripture, what are the rules or doctrine in the literal hermeneutic which help the reader determine applicability?
You ask a number of subsidiary questions in your comments to Mike's answer. I will likely attempt to answer some of those in this answer as well, since some relate. Also, in general, this will not agree with Mike's perspective on why dispensationalists interpret as they do. Finally, my dispensational articulation here may not match all dispensationalists and their views, but if another were to come along and read it, I believe he/she would generally agree with what I will assert here--and it seems that any articulation from one holding the view should help tremendously in clearing up a number of things.
First, dispensationalism is not chiefly an interpretive framework (or "interpretive template laid over all of scripture"), but rather a theological framework (see this answer for more discussion of that).
Second, Jon Erickson in a comment asked, "Isn't the dispensational framework mostly concerned with eschatology?" No, but I can see how one might think that from the outside. Again, I refer to the other answer, though briefly, dispensationalism holds a doxological view of the purpose of history, which obviously culminates in the eschaton, making that a key focal point for dispensational discussions.
Third, you comment: "Covenant theology identifies two covenants but sees grace and law in both, whereas dispensationalism, in all forms draws a firm line at the cross between a dispensation of law, and one of grace." Dispensationalists do commonly label two of the dispensations as "law" and "grace." This has tripped up a number of people who have not carefully studied dispensational thought, because we also hold that there is "grace and law in both" (and all dispensations). I'll give Ryrie's definition of a dispensation, it is "a distinguishable economy in the outworking of God's purpose" (33).1 A full discussion is found in chapter 2 of his work, while some more specifics about the misunderstanding of law and grace can be found in chapter 6.
Fourth, both you and Mike are correct to call the dispensational hermeneutic a "literal" one, though I can tell you both perhaps do not fully grasp what that means to a dispensationalist. If one thinks "natural communication" when hearing a dispensationalist say "literal," then one will be far closer to grasping the idea. Such communication does not exclude figurative language, but also does not expect figures to be hiding under every word. Though some dispensationalists are just as guilty of this as other Christian interpreters, the key difference is that the dispensationalist will insist that the literal meaning remains and has importance, even if it is also secondarily being used in some figurative way. The figurative never supersedes what is clearly literal to begin with, and something is considered only figurative if it clearly is not literal to begin with.
So just as I am now writing straight-forwardly (naturally) to you right now, dispensationalists believe God gave Scripture the same way so that it can be reasonably and relatively easily understood (at least by the original target audience). In my straight-forward communication, I expect and you expect that I mean what I say, and so if I write "Israel" (in the context of biblical discussion) you are not naturally going to think an idea like "spiritual Israel" (at least I hope), but rather that I am probably referring to either (1) Isaac's younger son, a.k.a. Jacob, (2) the ethnic people descending from Jacob, (3) the united nation coming out in the Exodus and eventually having its own kings, or (4) the northern territory in the divided kingdom. Exact meaning would be based on actual context of the discussion--but even if there were a warrant to take a reference to Israel as "spiritual Israel," it does not (in natural communication) warrant you to read back into the text about Jacob, the ethnic group, the united nation, or the divided kingdom such an understanding. Normal communication does not work that way, else everything written about London, England could be attributed to London, OH (which is obviously ridiculous).
Having clarified these things, on to...
Here it is more likely that certain details noted could be particular to me (or a subset of dispensationalists), but at the least, it will show you how one goes about it.
There are two basic "grounds" for any law of God, either:
Laws pertaining to (1) do not add anything new to what is required of a person, since what is required is not based on law, but on what a person was designed to be. However, a law can add a penalty for not following that law. Laws pertaining to (2) add a moral obligation to something that otherwise would be considered neutral (neither good or bad, such as whether fruit from a particular tree can be eaten or not), and that new moral obligation carries with it a penalty.
It is important to keep understanding of moral obligation separate from obligation of law.
So what dispensationalists recognize in Scripture from their literal hermeneutic is that God deals with Adam under certain laws, Noah under others, Abraham under others, Israel [see a smile here] under others, the nations under others, the Church under others, the millennial kingdom under others, and those in eternity under others. Anyone reading through the Bible would pick up this understanding quite naturally. It is in part the major shifts in these economies of how God operates that define the dispensations, which is why there are varying numbers of dispensations among dispensationalists, all depending on how minutely one wants to define a change of economy.
So as the laws change, I would say three main factors are key to knowing what laws one must follow.
(1) Target Audience
Who was the law spoken to directly? This group and this group only are subject to the penalties and any additional obligations. This is just as today. I'm not expected to follow the laws of Italy living in the USA. Likewise, if a law is given to Israel, it does not necessarily apply to Gentiles.
(2) Type of Law
A category (1) law is never rescinded as to moral obligation, but it can be rescinded by God as to penalty for violation of it. Cain did not die for murder (Gen 4:12), but such was to be so for those under Noahaic law (Gen 9:5-6) and Mosaic law (Ex 21:12-14), and arguably still today (since the statement to Noah covered all mankind at the time, and as best I know, never was rescinded). Additionally, the penalty can be changed (still keeping a penalty, just changing the consequence) by God at His will.
A category (2) law can be affected in both the same ways as a category (1) law, but additionally it can be rescinded entirely (returning the action back to a neutral state). Examples would be God rescinding the necessary observance of the Sabbath (Col 2:16) or the prohibition to eat unclean animals (Act 10:9-16).
(3) God's Command
Laws don't just come and go of their own--it is by Divine command (be that direct, or through revelation given by inspired authors of Scripture). So adulterers were to be killed under Mosaic law (Lev 20:10), but not so if they joined the church (1 Cor 5:1, 5; 6:9-11).
Notes
1 Charles C. Ryrie, Dispensationalism, Chicago, IL: Moody Publishers, 2007.
I think the answer lies in a theological disposition. There are two significant things that explain to me how the hermeneutic works. First Darby and the Plymouth Brethren had the "notion of a clergyman was a sin against the Holy Spirit, because it limited the recognition that the Holy Spirit could speak through any member of the Church." This is one of the significant dispositions.
The second disposition can be found outside of dispensationalism. Before Darby's generation many theologians experiencing the revivals under George Whitfield, Jonathan Edwards, etc.,were taking a sort of futuristic view of many parts of Revelation. The revivals themselves seemed almost like a new 'dispensation'. The idea of a 'rapture' was not formed yet but pretty close.
For example in Jonathan Edward’s History of Redemption:
Then an end is brought to the Jewish commomvealth in the destruction of their city and country. After that, an end is brought to the old Heathen empire in Constantino's time. The next step is the finishing of Satan's visible kingdom in the world, upon the fall of Antichrist, and the calling of the Jews. And last will come the destruction of the outward frame of the world itself, at the conclusion of the day of judgment. Heaven and earth began to shake, in order to a dissolution, according to the prophecy of Haggai. (P323)
Now I have these two dispositions, one leading up to Darby and one within Darby himself. From here, as someone who was momentarily a dispensationalist in the first year of being a Christian, I think I know the hermeneutic. First the emphasis on the Holy Spirit, and rejection of most tradition, traditional churches are viewed as more or less dead. Dead meaning not filled with the Spirit. Secondly taking lead from the previous generation who were lively and excited about future prophecy, Antichrist, salvation of Israel, etc. a unique suspicion arose.
The suspicion is this: Those dead churches are always quenching the Spirit by their traditions, and one way in which they remain cold and lifeless is to take everything in the Bible as a metaphor. They avoid the literal requirements of the Bible in order to maintain their carnal lives. Therefore, in the same way they have been removing the power of the book of Revelation. They do not have faith to take it literally, so everything is a symbol.
So the hermeneutic is partly subconscious and it simply says committed Christians need to take the Bible as 'literally as possible' and if that means imagining 1000 year reign of Christ as physical, then so be it. But when no logical meaning can be obtained from a metaphor, no matter how imaginative, then it has to be a metaphor. This is almost seen as a last resort, for literal views are the first goal, given the frustrated or excited emotional state and distrust of lukewarm clergy.
We tend to look at these extreme conclusion as ridiculous, at least I do on some points like the 1000 years, but I party understand how a person can be driven to that extreme. I can also see why a person feels the need to become extreme, when so many seem very cold and lifeless. I think my answer explains why dispensationalism appeals more to nondenominational Bible churches, Baptists, Pentecostal and Charismatic groups. Having said all this, I do not look down on those churches at all. God loves all those brothers and sisters in Christ and so should we.
When looking at dispensationalism we must not focus on the idea of dispensations, but of a future one in Revelation. This future dispensation is linked with Israel which also provides a new view of some parts of the the Old Testament, not shared by those who do not fully buy in to the movement. However, the basic idea of the two main 'dispensations', that of Law, versus that of Grace, was not at all new to Darby. Today under the lens of Biblical Theology, which emphasizes the unity of both covenants, we sometimes forget many of the reformers often also stressed the differences of these covenants. Biblical Theology, though very useful, is not the be-and-end-all for many Evangelicals. Many of us are a hybrid of different labels.
Luther especially stressed the two 'dispensations' while not being a 'dispensationalist':
We will not have Moses as ruler or lawgiver any longer. Indeed God himself will not have it either. Moses was an intermediary solely for the Jewish people. It was to them that he gave the law. We must therefore silence the mouths of those factious spirits who say, “Thus says Moses,” etc. Here you simply reply: Moses has nothing to do with us. If I were to accept Moses in one commandment, I would have to accept the entire Moses. Thus the consequence would be that if I accept Moses as master, then I must have myself circumcised,4 wash my clothes in the Jewish way, eat and drink and dress thus and so, and observe all that stuff. So, then, we will neither observe nor accept Moses. Moses is dead. His rule ended when Christ came. He is of no further service. (Luther's Works Volume 35.164)
Again one can prove it from the third commandment that Moses does not pertain to Gentiles and Christians. For Paul [Col. 2:16] and the New Testament [Matt. 12:1–12; John 5:16; 7:22–23; 9:14–16] abolish the sabbath, to show us that the sabbath was given to the Jews alone, for whom it is a stern commandment. The prophets referred to it too, that the sabbath of the Jews would be abolished. For Isaiah says in the last chapter, “When the Savior comes, then such will be the time, one sabbath after the other, one month after the other,” etc.6 This is as though he were trying to say, “It will be the sabbath every day, and the people will be such that they make no distinction between days. For in the New Testament the sabbath is annihilated as regards the crude external observance, for every day is a holy day,” etc. (Luther's Works Volume 35.164)
Even the Westminster Confession of Faith noted various or "manifold dispensations" in 1646 article, here.
So really the theological disposition at work is simply an excited desire to make a literal view of everything in the Bible to create a future predicted 'dispensation'. The two main dispensations of Law and Grace are borrowed from many of the reformers and puritans.
