Two ER membrane-resident transmembrane kinases, IRE1 and PERK, function as stress sensors in the unfolded protein response. IRE1 also has an endoribonuclease activity, which initiates a non-conventional mRNA splicing reaction, while PERK phosphorylates eIF2α. We engineered a potent small molecule, IPA, that binds to IRE1's ATP-binding pocket and predisposes the kinase domain to oligomerization, activating its RNase. IPA also inhibits PERK but, paradoxically, activates it at low concentrations, resulting in a bell-shaped activation profile. We reconstituted IPA-activation of PERK-mediated eIF2α phosphorylation from purified components. We estimate that under conditions of maximal activation less than 15% of PERK molecules in the reaction are occupied by IPA. We propose that IPA binding biases the PERK kinase towards its active conformation, which trans-activates apo-PERK molecules. The mechanism by which partial occupancy with an inhibitor can activate kinases may be wide-spread and carries major implications for design and therapeutic application of kinase inhibitors.