Numerous essential oils have been researched as biopesticides because of their effectiveness and environmental safety. Nevertheless, encapsulation is necessary to improve its physical, chemical, and biological properties. Therefore, this paper aims to investigate the physicochemical characteristics and antifungal activity of the Artemisia herba-alba essential oil (HAEO) encapsulated in succinic acid-modified β-cyclodextrin (SACD). Hydrodistillation was used to extract a yellowish oil from the plant A. herba-alba, and gas chromatography coupled to mass spectrometry was performed to determine the chemical composition. The scanning electron microscope, Fourier transform infrared, thermogravimetric analysis, and docking studies were combined to validate the molecular inclusion of HAEO with SACD. The antifungal activity was examined against Botrytis cinerea by direct contact with a potato dextrose agar. The results showed that the main compound in HAEO was α-thujone (65.0%). Furthermore, HAEO has been successfully incorporated into SACD with a binding energy value of −5.3 kJ·mol−1, and its thermal stability improved. At a 0.1% concentration, HAEO in encapsulated form showed a higher ability to inhibit B. cinerea (38.34%), compared to EO in free form (12.00%). Thus, these findings produced evidence that the strategy of encapsulating EOs by SACD can develop novel B. cinerea inhibitors and a promising alternative biopesticide.