We synthesized ionic liquids (ILs) comprising an alkylphosphonium cation paired with phenolate, 4-nitrophenolate, and 4-methoxyphenolate anions that span a wide range of predicted reaction enthalpies with CO2. Each phenolate-based IL was characterized by spectroscopic techniques, and their physical properties (viscosity, conductivity, and CO2 solubility) were determined. We use the computational quantum chemical approach paired with experimental results to reveal the reaction mechanism of CO2 with phenolate ILs. Model chemistry shows that the oxygen atom of phenolate associates strongly with phosphonium cations and is able to deprotonate the cation to form an ylide with an affordable activation barrier. The ATR-FTIR and (31)P NMR spectra indicate that the phosphonium ylide formation and its reaction with CO2 are predominantly responsible for the observed CO2 uptake rather than direct anion-CO2 interaction.