Water‐soluble diol‐functionalized imidazolium ionic liquid 1, prepared from 2,2‐bis(1‐methyl‐methyl‐imidazolium)propane‐1,3‐diol bromide, potassium hydroxide, and malononitrile, was used as an efficient phosphine‐free ligand for palladium‐catalyzed arylation of aryl halides with acrylates in aqueous phase under mild conditions. It was found that the synergistic coordinating action of diol‐functionalized imidazolium cation with CN‐containing anion played the key role in improving the activity and stability of the catalyst.