Ionic liquids (ILs) are emerging as superior solvents for numerous industrial applications, including the pretreatment of biomass for the microbial production of biofuels. However, some of the most effective ILs used to solubilize cellulose inhibit microbial growth, decreasing efficiency in the overall process. Here we identify an IL-resistance mechanism consisting of two adjacent genes from Enterobacter lignolyticus, a rain forest soil bacterium that is tolerant to an imidazolium-based IL. These genes retain their full functionality when transferred to an Escherichia coli biofuel host, with IL resistance established by an inner membrane transporter, regulated by an IL-inducible repressor. Expression of the transporter is dynamically adjusted in direct response to IL, enabling growth and biofuel production at levels of IL that are toxic to native strains. This natural auto-regulatory system provides the basis for engineering IL-tolerant microbes, which should accelerate progress towards effective conversion of lignocellulosic biomass to fuels and renewable chemicals.