The COVID-19 pandemic is spreading at an alarming rate, posing an unprecedented threat to the global economy and human health. Broad-spectrum antivirals are currently being administered for severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) treatment. China's prevention and treatment guidelines suggest the use of an anti-influenza drug, Arbidol, for the clinical treatment of COVID-19. Reports indicate that Arbidol could neutralize the SARS-CoV-2. Monotherapy with Arbidol is found superior to Lopinavir-Ritonavir or Favipiravir in the treatment of COVID-19. In the SARS-CoV-2, Arbidol acts upon interfering in virus binding to host cells. However, the detailed understanding of Arbidol induced inhibition of SARS-CoV-2 is not known. Here, we present atomistic insights into the Arbidol-induced SARS-CoV-2 membrane fusion inhibition and propose a model of inhibition. Molecular dynamics (MD) simulation-based analyses demonstrate that Arbidol binds and stabilizes at the receptor-binding domain (RBD)/ACE2 interface with a high affinity. It forms stronger intermolecular interactions with RBD than ACE2. Analyses of the detailed decomposition of energy components and binding affinities revealed a substantial increase in the affinity between RBD and ACE2 in the Arbidol-bound RBD/ACE2 complex, suggesting that Arbidol could generate favorable interactions between them. Based on our MD simulation results, we propose that the binding of Arbidol induced structural rigidity in the virus glycoprotein resulting in restriction of the conformational rearrangements associated with membrane attachment and virus entry.Further, key residues of RBD and ACE2 that interacted with Arbidol were identified, opening the doors for the development of therapeutic strategies and higher efficacy Arbidol derivatives or lead drug candidates.