Monastrol, a cell-permeable inhibitor of the kinesin Eg5, has been used to probe the dynamic organization of the mitotic spindle. The mechanism by which monastrol inhibits Eg5 function is unknown. We found that monastrol inhibits both the basal and the microtubule-stimulated ATPase activity of the Eg5 motor domain. Unlike many ATPase inhibitors, monastrol does not compete with ATP binding to Eg5. Monastrol appears to inhibit microtubule-stimulated ADP release from Eg5 but does not compete with microtubule binding, suggesting that monastrol binds a novel allosteric site in the motor domain. Finally, we established that (S)-monastrol, as compared to the (R)-enantiomer, is a more potent inhibitor of Eg5 activity in vitro and in vivo. Future structural studies should help in designing more potent Eg5 inhibitors for possible use as anticancer drugs and cell biological reagents.