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The electrochemical reduction of carbon dioxide (CO₂ER) is amongst one the most promising technologies to reduce greenhouse gas emissions since carbon dioxide (CO₂) can be converted to value-added products. Moreover, the possibility of using a renewable source of energy makes this process environmentally compelling. CO₂ER in ionic liquids (ILs) has recently attracted attention due to its unique properties in reducing overpotential and raising faradaic efficiency. The current literature on CO₂ER mainly reports on the effect of structures, physical and chemical interactions, acidity, and the electrode–electrolyte interface region on the reaction mechanism. However, in this work, new insights are presented for the CO₂ER reaction mechanism that are based on the molecular interactions of the ILs and their physicochemical properties. This new insight will open possibilities for the utilization of new types of ionic liquids. Additionally, the roles of anions, cations, and the electrodes in the CO₂ER reactions are also reviewed.