The ability of ionic liquids (ILs) to solubilize cellulose has sparked interest in their use for enzymatic biomass processing. However, this potential is yet to be realized, primarily because ILs inactivate requisite cellulases by mechanisms that are yet to be identified. We used a combination of enzymology, circular dichroism (CD), nuclear magnetic resonance (NMR), and molecular dynamics (MD) methods to investigate the molecular basis for the inactivation of the endocellulase 1 (E1) from Acidothermus cellulolyticus by the imidazolium IL 1-butyl-3-methylimidazolium chloride ([BMIM][Cl]). Enzymatic studies revealed that [BMIM][Cl] inactivates E1 in a biphasic manner that involves rapid, reversible inhibition, followed by slow, irreversible deactivation. Backbone NMR signals of the 40.5 kDa E1 were assigned by triple resonance NMR methods, enabling monitoring of residue-specific perturbations. 1H-15N NMR titration experiments revealed that [BMIM][Cl] binds reversibly to the E1 active site, indicating that reversible deactivation is due to competitive inhibition of substrate binding. Prolonged incubation with [BMIM][Cl] led to substantial global changes in the 1H-15N heteronuclear single quantum coherence NMR and CD spectra of E1 indicative of protein denaturation. Notably, weak interactions between [BMIM][Cl] and residues at the termini of several helices were also observed, which, together with MD simulations, suggest that E1 denaturation is promoted by [BMIM][Cl]-induced destabilization of helix capping structures. In addition to identifying determinants of E1 inactivation, our findings establish a molecular framework for engineering cellulases with improved IL compatibility.