The study aimed to estimate the feasibility of α-cyclodextrin (α-CD), β-cyclodextrin (β-CD), and γ-cyclodextrin (γ-CD) to encapsulate Mosla chinensis essential oil (EO) by ultrasonic-assisted method. The physical properties variations, stabilization mechanisms, and formation processes of the inclusion complexes (ICs) were investigated using experimental methods, molecular docking, and molecular dynamics (MD) simulation. Scanning electron microscopy, fourier transform infrared spectroscopy, thermogravimetric analysis, and gas chromatography–mass spectrometry showed that the ICs were successfully prepared, which differentially improved the thermal stability and retained the chemical composition of EO. The dissolution profile showed that the Peppas model can be used to describe the diffuse release mechanism of EO. Finally, molecular docking and MD simulation theoretically confirmed the interaction and conformational changes of carvacrol (the main active component of Mosla chinensis EO) inside the cavity of CDs. The results indicate that hydrogen bonding was the primary driving force for the carvacrol spontaneous access to the cavity. Further, a binding dynamic balance occurs between carvacrol and β-CD, whereas a bind and away dynamic balance occurs in the IC between carvacrol and α-CD, γ-CD. The comprehensive results show that the medium cavity size of β-CD is a suitable host molecule for Mosla chinensis EO of encapsulation, release, and stabilization. A combination of experimental and theoretical calculations is useful for the pinpoint targeted design and optimization of CD molecular encapsulation of small entity molecules. β-CD was rationally screened as a better candidate for stabilizing EO, which provides an option for a meaningful path to realistic EO applications.