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The company, set up last year, says algorithms in its software are able to detect that a person is not using a network in an ordinary way but is seeking out credit card information, for example.
The software is aimed at "targeted attacks" or "advanced persistent threats" -- cyber attacks that are usually trying to access a credit card database or a file server with sensitive information about clients.
As a single client of a bank wouldn't be trying to get this information, the software entices the hacker by showing him, for example, a "quick" path to the credit card database, which is in fact false.
"We look at attackers' vulnerability. They are human beings, they have weaknesses, they become very greedy," Illusive Chief Executive, Shlomo Touboul, said.
The company, founded by Ofer Israeli, previously a researcher at Israeli computer security pioneer Check Point Software, counts U.S. and Israeli banks as well as insurance, healthcare, telecoms and law firms among its customers.
Israeli said the company's solution differed from existing "honeypots" that lure attackers into selected traps.
Large networks require an endless number of honeypots to trap attackers, making it hard to keep pace with the level of attacks across an organisation, which can have thousands or even millions of devices to protect.
Illusive "paints a deceptive layer of honey over the entire network," Israeli said.
The false information is only visible to attackers trying to steal information. It is transparent to users and security staff and does not affect the normal functioning of the devices, computer servers and network equipment.
Avivah Litan and Lawrence Pingree, analysts at Gartner -- which included Illusive in its 2015 "Cool Vendors in Security Intelligence" -- said such deception techniques will become more prevalent because they are more effective than defensive methods and easier to deploy.
Illusive's biggest challenge will be convincing customers and IT administrators that its system won't interfere with normal business operations, they said.
The start-up raised an initial round of $5 million from Team8, a new fund focused on cyber security and led by veterans of the Israeli army's 8200 intelligence and electronic espionage unit.
Investors in Team8 include Alcatel-Lucent, Cisco and Innovation Endeavors, founded by Google executive chairman Eric Schmidt.
With cyber attacks now regularly infiltrating organisations on the Internet, most still fail to realise they have been targeted until months have passed, by which time the damage has been done.
Illusive says that once hackers start moving around in a network, it can neutralise the attack and trigger an intrusion report, enabling technical administrators to detect and contain the attack at an early stage.
"We doubled sales over the last three months and we are looking to double sales in the next six months," said Touboul, who has founded three cybersecurity companies including Finjan and Shany, which was acquired by Intel.
The company plans to open an office in New York soon and then expand to Europe next year.