Kinases are important therapeutic targets in oncology due to their frequent deregulation in cancer. Typical ATP-competitive kinase inhibitors, however, also inhibit off-target kinases that could lead to drug toxicity. Allosteric inhibitors represent an alternative approach to achieve greater kinase selectivity, although examples of such compounds are few. Here, we elucidate the mechanism of action of IPA-3, an allosteric inhibitor of Pak kinase activation. We show that IPA-3 binds covalently to the Pak1 regulatory domain and prevents binding to the upstream activator Cdc42. Preactivated Pak1, however, is neither inhibited nor bound significantly by IPA-3, demonstrating exquisite conformational specificity of the interaction. Using radiolabeled IPA-3, we show that inhibitor binding is specific and reversible in reducing environments. Finally, cell experiments using IPA-3 implicate Pak1 in phorbol-ester-stimulated membrane ruffling. This study reveals a novel allosteric mechanism for kinase inhibition through covalent targeting of a regulatory domain.