[proofplan]
We expand the Dirichlet convolution with the constant one function, so the desired identity reduces to evaluating the divisor sum $\sum_{d \mid n}\mu(d)$. The case $n=1$ is immediate from the definition of $\mu(1)$. For $n \geq 2$, only squarefree divisors contribute to the sum; these are precisely the products of subsets of the distinct prime divisors of $n$. Their Möbius values form the finite alternating subset sum $\sum_{A}(-1)^{|A|}$, which factors as $(1-1)^r$ and hence vanishes.
[/proofplan]
[step:Reduce the convolution identity to a divisor sum]
Define the arithmetic function $S: \mathbb{N} \to \mathbb{C}$ by
\begin{align*}
S(n) = (\mu * \mathbf{1})(n).
\end{align*}
By the definition of Dirichlet convolution and by $\mathbf{1}(m)=1$ for every $m \in \mathbb{N}$,
\begin{align*}
S(n)
&= \sum_{d \mid n} \mu(d)\mathbf{1}(n/d)\\
&= \sum_{d \mid n} \mu(d).
\end{align*}
Thus it suffices to prove that this divisor sum equals $\varepsilon(n)$ for every $n \in \mathbb{N}$.
[/step]
[step:Evaluate the divisor sum at $n=1$]
The positive divisors of $1$ consist only of $1$. Since the Möbius function is defined by $\mu(1)=1$, we have
\begin{align*}
S(1) = \sum_{d \mid 1}\mu(d) = \mu(1)=1=\varepsilon(1).
\end{align*}
[/step]
[step:Identify the squarefree divisors that can contribute when $n \geq 2$]
Fix $n \in \mathbb{N}$ with $n \geq 2$. Let $p_1,\dots,p_r$ be the distinct prime divisors of $n$, where $r \geq 1$. For each subset $A \subset \{1,\dots,r\}$, define the divisor $d_A \in \mathbb{N}$ by
\begin{align*}
d_A = \prod_{i \in A} p_i,
\end{align*}
with the empty product interpreted as $d_{\varnothing}=1$.
If $d \mid n$ and $\mu(d) \neq 0$, then $d$ is squarefree, so every prime divisor of $d$ occurs to exponent $1$. Since every prime divisor of $d$ is one of the primes $p_1,\dots,p_r$, there is a unique subset $A \subset \{1,\dots,r\}$ such that $d=d_A$. Conversely, each $d_A$ is squarefree and divides $n$, hence
\begin{align*}
\mu(d_A)=(-1)^{|A|}.
\end{align*}
Therefore
\begin{align*}
\sum_{d \mid n}\mu(d)
= \sum_{A \subset \{1,\dots,r\}}(-1)^{|A|}.
\end{align*}
[guided]
The Möbius function vanishes exactly on integers divisible by the square of a prime. Therefore, in the divisor sum
\begin{align*}
\sum_{d \mid n}\mu(d),
\end{align*}
we only need to keep track of the squarefree divisors of $n$.
Let $p_1,\dots,p_r$ be the distinct prime divisors of $n$. Since $n \geq 2$, at least one prime divides $n$, so $r \geq 1$. For each subset $A \subset \{1,\dots,r\}$, define
\begin{align*}
d_A = \prod_{i \in A} p_i,
\end{align*}
where the empty product is $d_{\varnothing}=1$. This construction gives a squarefree divisor of $n$: each prime $p_i$ with $i \in A$ appears once, and no other prime appears.
Now let $d \mid n$ satisfy $\mu(d)\neq 0$. By the definition of the Möbius function, $d$ is squarefree. Because $d$ divides $n$, every prime divisor of $d$ must be among $p_1,\dots,p_r$. Since $d$ is squarefree, it is exactly the product of the distinct primes among $p_1,\dots,p_r$ that divide it. Thus there is a unique subset $A \subset \{1,\dots,r\}$ such that $d=d_A$.
For such a divisor $d_A$, the Möbius function counts the parity of the number of prime factors:
\begin{align*}
\mu(d_A)=(-1)^{|A|}.
\end{align*}
All other divisors have Möbius value $0$. Hence the whole divisor sum reduces to the finite subset sum
\begin{align*}
\sum_{d \mid n}\mu(d)
= \sum_{A \subset \{1,\dots,r\}}(-1)^{|A|}.
\end{align*}
[/guided]
[/step]
[step:Evaluate the alternating subset sum]
The finite product expansion gives
\begin{align*}
\prod_{i=1}^{r}(1-1)
&= \sum_{A \subset \{1,\dots,r\}} \prod_{i \in A}(-1)\\
&= \sum_{A \subset \{1,\dots,r\}}(-1)^{|A|}.
\end{align*}
Since $r \geq 1$, the left-hand side is $0$. Therefore
\begin{align*}
\sum_{d \mid n}\mu(d)=0=\varepsilon(n).
\end{align*}
Combining this with the case $n=1$, we have $S(n)=\varepsilon(n)$ for every $n \in \mathbb{N}$. Since $S=\mu * \mathbf{1}$, this proves
\begin{align*}
\mu * \mathbf{1}=\varepsilon.
\end{align*}
[/step]