The unfolded protein response (UPR) is a key signaling system that regulates protein homeostasis within the endoplasmic reticulum (ER). The primary step in UPR activation is the detection of misfolded proteins, the mechanism of which is unclear. We have previously suggested an allosteric mechanism for UPR induction (Carrara et al., 2015) based on qualitative pull-down assays. Here, we develop an in vitro Förster resonance energy transfer (FRET) UPR induction assay that quantifies IRE1 luminal domain and BiP association and dissociation upon addition of misfolded proteins. Using this technique, we reassess our previous observations and extend mechanistic insight to cover other general ER misfolded protein substrates and their folded native state. Moreover, we evaluate the key BiP substrate-binding domain mutant V461F. The new experimental approach significantly enhances the evidence suggesting an allosteric model for UPR induction upon ER stress.