A wide variety of two-dimensional layered materials are synthesized by liquid-phase exfoliation. Here we examine exfoliation of MoS₂ into nanosheets in a mixture of water and isopropanol (IPA) containing cavitation bubbles. Using force fields optimized with experimental data on interfacial energies between MoS₂ and the solvent, multimillion-atom molecular dynamics simulations are performed in conjunction with experiments to examine shock-induced collapse of cavitation bubbles and the resulting exfoliation of MoS₂. The collapse of cavitation bubbles generates high-speed nanojets and shock waves in the solvent. Large shear stresses due to the nanojet impact on MoS₂ surfaces initiate exfoliation, and shock waves reflected from MoS₂ surfaces enhance exfoliation. Structural correlations in the solvent indicate that shock induces an ice VII like motif in the first solvation shell of water.