We present spectroscopic and photometric observations of the Type IIn supernova (SN) 2008iy. SN 2008iy showed an unprecedentedly long rise time of åisebox-0.5ex 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 M$_r$ i̊sebox-0.5ex -19.1 mag, and the total radiated energy over the first rs̊ebox-0.5ex 700 d was rae̊box-0.5ex 2 × 10$^50$ 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 L$_X$ > 10$^41$ ergs$^-1$). 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 raib̊ox-0.5ex 100kms$^-1$. We argue that the luminosity of SN 2008iy is powered via the interaction of the SN ejecta with a dense, clumpy circumstellar medium. The raiso̊x-0.5ex 400-d rise time can be understood if the number density of clumps increases with distance over a radius raisex̊-0.5ex 1.7 × 10$^16$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.