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I have run an IV regression with a dichotomous outcome (Y) and my endogenous ("instrumented") regressor (X1) is also dichotomous. I am assessing whether continuous variable (X2) is moderating the effect of X1 on Y.

When X2 is not in the model, there is a negative, significant association between Y and X1.

When X2 is added to the model, X2 exacerbates the negative association between Y and X1. So it is moderating the relationship. In this model, there is a positive, significant association between Y and X2.

Does this mean that as X2 increases, the negative effect of X1 on Y increases, or is that misinterpreting it?

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