Locally concentrated ionic liquid electrolytes (LCILEs), formed by introducing non-coordinating diluents into ionic liquid systems, have emerged as promising electrolytes for lithium metal batteries due to their ability to promote stable solid–electrolyte interphase (SEI) formation and LiF-rich interphases. However, the molecular-level role of diluents in regulating interfacial reactivity remains unclear. Here, we investigate the interfacial interactions and decomposition behavior of LCILEs on the Li(001) surface using first-principles calculations and ab initio molecular dynamics simulations. LiFSI salt-containing and anion-rich Pyr13FSI systems with varying TTE concentrations were examined. Increasing diluent concentration weakens adsorption and reduces interfacial charge density, thereby modifying the reaction environment. In all systems, FSI dissociation produces LiF, Li₂S, and Li₂O species along with a persistent NS fragment. The presence of diluent delays the onset of decomposition, introducing an extended induction period. Importantly, the effect of dilution is nonmonotonic. Moderate dilution enhances anion polarization and promotes bond cleavage, whereas excessive dilution leads to oversolvation that spatially separates reactive species from the electrode, suppressing decomposition and stabilizing NSO₂ intermediates. These findings elucidate how diluent concentration governs electrolyte reactivity and SEI formation on lithium metal surfaces, providing guidance for the rational design of advanced LCILEs.