ClpB is a tightly regulated AAA+ disaggregation machine. Each ClpB molecule is composed of a flexibly attached N-terminal domain (NTD), an essential middle domain (MD) that activates the machine by tilting, and two nucleotide-binding domains. The NTD is not well-characterized structurally and is commonly considered to serve as a dispensable substrate-binding domain. Here, we use single-molecule FRET spectroscopy to directly monitor the real-time dynamics of ClpB's NTD and reveal its unexpected autoinhibitory function. We find that the NTD fluctuates on the microsecond time scale, and these dynamics result in steric hindrance that limits the conformational space of the MD to restrict its tilting. This leads to significantly inhibited ATPase and disaggregation activities of ClpB, an effect that is alleviated upon binding of a substrate protein or the cochaperone DnaK. This entropic inhibition mechanism, which is mediated by ultrafast motions of the NTD and is not dependent on any strong interactions, might be common in related ATP-dependent proteases and other multidomain proteins to ensure their fast and reversible activation.