Squalene epoxidase (SE) is a key flavin adenine dinucleotide (FAD)-dependent enzyme of ergosterol and cholesterol biosynthetic pathways and an attractive potential target for drugs used to inhibit the growth of pathogenic fungi or to lower cholesterol level. Although many studies on allylamine drugs activity have been published during the last 30 years, up until now no detailed mechanism of the squalene epoxidase inhibition has been presented. Our study brings such a model at atomic resolution in the case of yeast Saccharomyces cerevisiae . Presented data resulting from modeling studies are in excellent agreement with experimental findings. A fully atomic three-dimensional (3D) model of squalene epoxidase (EC 188.8.131.52) from S. cerevisiae was built with the help of 3D-Jury approach and further screened based on data known from mutation experiments leading to terbinafine resistance. Docking studies followed by molecular dynamics simulations and quantum interaction energy calculations [MP2/6-31G(d)] resulted in the identification of the terbinafine-squalene epoxidase mode of interaction. In the energetically most likely orientation of terbinafine its interaction energy with the protein is ca. 120 kJ/mol. In the favorable position the terbinafine lipophilic moiety is located vertically inside the squalene epoxidase binding pocket with the tert-butyl group oriented toward its center. Such a position results in the SE conformational changes and prevents the natural substrate from being able to bind to the enzyme's active site. That would explain the noncompetitive manner of SE inhibition. We found that the strongest interaction between terbinafine and SE stems from hydrogen bonding between hydrogen-bond donors, hydroxyl group of Tyr90 and amine nitrogen atom of terbinafine. Moreover, strong attractive interactions were recorded for amino acids whose mutations resulted in terbinafine resistance. Our results, elucidating at a molecular level the mode of terbinafine inhibitory activity, can be utilized in designing more potent or selective antifungal drugs or even medicines lowering cholesterol in humans.