We present spectroscopic and photometric observations of the Type IIn supernova (SN) 2008iy. SN 2008iy showed an unprecedentedly long rise time of ∼400 d, making it the first known SN to take significantly longer than 100 d to reach peak optical luminosity. The peak absolute magnitude of SN 2008iy was Mr≈−19.1 mag, and the total radiated energy over the first ∼700 d was ∼2 × 1050 erg. Spectroscopically, SN 2008iy is very similar to the Type IIn SN 1988Z at late times and, like SN 1988Z, it is a luminous X‐ray source (both SNe had an X‐ray luminosity LX > 1041 erg s−1). SN 2008iy has a growing near‐infrared excess at late times similar to several other SNe IIn. The Hα emission‐line profile of SN 2008iy shows a narrow P Cygni absorption component, implying a pre‐SN wind speed of ∼100 km s−1. We argue that the luminosity of SN 2008iy is powered via the interaction of the SN ejecta with a dense, clumpy circumstellar medium. The ∼400‐d rise time can be understood if the number density of clumps increases with distance over a radius ∼1.7 × 1016 cm from the progenitor. This scenario is possible if the progenitor experienced an episodic phase of enhanced mass loss <1 century prior to explosion or if the progenitor wind speed increased during the decades before core collapse. We favour the former scenario, which is reminiscent of the eruptive mass‐loss episodes observed for luminous blue variable (LBV) stars. The progenitor wind speed and increased mass‐loss rates serve as further evidence that at least some, and perhaps all, Type IIn SNe experience LBV‐like eruptions shortly before core collapse. We also discuss the host galaxy of SN 2008iy, a subluminous dwarf galaxy, and offer a few reasons why the recent suggestion that unusual, luminous SNe preferentially occur in dwarf galaxies may be the result of observational biases.