Cypermethrin (CMN) is a man-made insecticide, and its abuse has led to potential adverse effects, particularly in sensitive populations such as aquatic organisms. The present study was focused on the toxic phenotype and detoxification mechanism in grass carp (Ctenopharyngodon idella) after treatment with waterborne CMN (0.651 μg/L) for 6 weeks in vivo or 6.392 μM for 24 h in vitro. In vivo, we describe the toxic phenotype of the liver of grass carp in terms of pathological changes, serum transaminase levels, oxidative stress indexes, and apoptosis rates. RNA-Seq analysis (2 × 3 cDNA libraries) suggested a compromise of proteasome and oxidative phosphorylation signaling pathways under CMN exposure. Thus, these two pathways were chosen for the in vitro study, which suggested that the CMN intoxication-induced proteasome pathway caused hepatotoxicity in the liver cell line of grass carp (L8824 cells). Moreover, pretreatment with MG132, a proteasome inhibitor, displayed protection against the toxic effects of CMN by enhancing antioxidative and anti-inflammatory capability by directly inhibiting the proteasomal degradation of nuclear factor erythroid-2 related factor (Nrf2) and IκB-α, thus turning on the transcription of downstream genes of Nrf2 and NF-κB, respectively. Taken together, these results suggest proteasome activity as a reason for CMN-induced hepatotoxicity.