IRE1α is an endoplasmic reticulum (ER) sensor that recognizes misfolded proteins to induce the unfolded protein response (UPR). We studied cholera toxin (CTx), which invades the ER and activates IRE1α in host cells, to understand how unfolded proteins are recognized. Proximity labeling colocalized the enzymatic and metastable A1 segment of CTx (CTxA1) with IRE1α in live cells, where we also found that CTx-induced IRE1α activation enhanced toxicity. In vitro, CTxA1 bound the IRE1α lumenal domain (IRE1αLD), but global unfolding was not required. Rather, the IRE1αLD recognized a seven-residue motif within an edge β-strand of CTxA1 that must locally unfold for binding. Binding mapped to a pocket on IRE1αLD normally occupied by a segment of the IRE1α C-terminal flexible loop implicated in IRE1α oligomerization. Mutation of the CTxA1 recognition motif blocked CTx-induced IRE1α activation in live cells, thus linking the binding event with IRE1α signal transduction and induction of the UPR.