Biomolecular condensates formed via phase separation of proteins and nucleic acids are thought to be associated with a wide range of cellular functions and dysfunctions. We dissect critical molecular events associated with phase separation of an intrinsically disordered prion-like low-complexity domain of Fused in Sarcoma by performing single-molecule studies that permit us to access the wealth of molecular information that is skewed in conventional ensemble experiments. Our single-molecule FRET experiments reveal the coexistence of two conformationally distinct subpopulations in the monomeric form. Single-droplet single-molecule FRET studies coupled with fluorescence correlation spectroscopy, picosecond time-resolved fluorescence anisotropy, and vibrational Raman spectroscopy indicate that structural unwinding switches intramolecular interactions into intermolecular contacts allowing the formation of a dynamic network within condensates. A disease-related mutation introduces enhanced structural plasticity engendering greater interchain interactions that can accelerate pathological aggregation. Our findings provide key mechanistic underpinnings of sequence-encoded dynamically-controlled structural unzipping resulting in biological phase separation.