<p>Isoeugenol is a fragrance material and possesses extensive pharmacological activities. However, its application is restricted because of poor water solubility, low bioavailability, instability, irritation, and volatility. Although encapsulation of isoeugenol in the cavity of β-cyclodextrin (β-CD) is a way to solve these similar problems, the formation mechanism and the interaction of isoeugenol and β-CD remain unclear. In this work, isoeugenol was encapsulated in β-CD to produce isoeugenol-β-cyclodextrin (IE-β-CD) inclusion complex. The product was characterized by thermogravimetric analysis and Fourier transform infrared spectroscopy. Molecular simulation was used to investigate the interaction between isoeugenol and β-CD and to reveal the formation mechanism. The results showed that IE-β-CD was successfully prepared. The molar ratio of isoeugenol to β-CD in the product is about 1:1. The negative chemical potentials indicate that the formation process of IE-β-CD is spontaneous. Isoeugenol lasted long, and its stability was improved. The isoeugenol release reaction order, activation energy, and pre-exponential factor were obtained as 0.5, 121.4&#xa0;kJ/mol, and 5.3 × 10¹¹, respectively. The structure of IE-β-CD was optimized. The binding energies were − 119.0 and − 114.2&#xa0;kJ/mol for orientations A and B, respectively. The binding energy and energy gap indicate that IE-β-CD formed by orientation A is relatively more stable than that formed by orientation B. Deformation and charge-transfer interaction occurring in the complexation process were driving factors to form stable IE-β-CD. Isoeugenol donates electrons to β-CD and as a whole carries positive charges. The energy gaps indicate that IE-β-CD has a relatively high activity compared with the free isoeugenol and β-CD.</p>