Accumulation of misfolded proteins in the lumen of the endoplasmic reticulum (ER) activates the unfolded protein response (UPR). Ire1, an ER-resident transmembrane kinase/RNase, senses the protein folding status inside the ER. When activated, Ire1 oligomerizes and trans-autophosphorylates, activating its RNase and initiating a nonconventional mRNA splicing reaction. Splicing results in production of the transcription factor Hac1 that induces UPR target genes; expression of these genes restores ER homeostasis by increasing its protein folding capacity and allows abatement of UPR signaling. Here, we uncouple Ire1's RNase from its kinase activity and find that cells expressing kinase-inactive Ire1 can regulate Ire1's RNase, splice HAC1 mRNA, produce Hac1 protein, and induce UPR target genes. Unlike wild-type IRE1, kinase-inactive Ire1 cells display defects in Ire1 deactivation. Failure to properly inactivate Ire1 causes chronic ER stress and reduces cell survival under UPR-inducing conditions. Thus, Ire1-catalyzed phosphoryl-transfer aids disassembly of Ire1 signaling complexes and is a critical component of the UPR homeostatic feedback loop.